FXstreet.com (Barcelona) - For the RBA, last week’s terms of trade indicators highlighted a potential emergent dilemma. According to Research Analyst Robert Anderson at NAB, “While low inflation can be expected to continue for a quarter or so, the downward factors seem to have run their course and could soon be replaced by upwards price pressures.”
The dilemma for the RBA is that the resilience of the Australian dollar is a defacto tightening of monetary conditions in a world where the RBA has been trying to engineer a more stimulatory monetary policy stance. Moreover, “The latent inflationary forces in the economy include the likely coming fall in the currency, an end to discounting and a relatively tight labor market.” he adds.
The market is still pricing in almost 100 basis points of easing by mid 2013. “These observations support our view that we are coming to the end of the interest rate easing cycle – to us, this is too aggressive and could happen with a Eurozone melt-down but this surely is not the central case right now.” Any episodic fluctuations of risk in China and America could dictate a further weakness for the AUD.
The dilemma for the RBA is that the resilience of the Australian dollar is a defacto tightening of monetary conditions in a world where the RBA has been trying to engineer a more stimulatory monetary policy stance. Moreover, “The latent inflationary forces in the economy include the likely coming fall in the currency, an end to discounting and a relatively tight labor market.” he adds.
The market is still pricing in almost 100 basis points of easing by mid 2013. “These observations support our view that we are coming to the end of the interest rate easing cycle – to us, this is too aggressive and could happen with a Eurozone melt-down but this surely is not the central case right now.” Any episodic fluctuations of risk in China and America could dictate a further weakness for the AUD.
