Forex Flash: Slow down in resource investment handicaps Australia – NAB (Barcelona) - According to Rob Henderson, Chief Australian Economist at NAB, “In Australia, the elephant in the room is the coming slow down in resources investment in and what will fill that hole plus the downturn in real national income due to the pull back in the terms of trade. The high Aussie dollar will make this adjustment harder, if this trend persists.”

It seems possible to us that the RBA could decide to pre-empt these contractionary forces by cutting rates early. “There are inherit risks in such a strategy of course, not the least being the possibility they will fuel asset price bubbles in the domestic economy or make a policy mistake by over stimulating demand if the slowdown ahead turns out to be mild and transitory.” Henderson warns.

Sitting on their hands in October still seems to be appropriate, the anxiety and caution continuing with a finger on the policy trigger in case evidence emerges of a down leg in activity. Thus, “we doubt that the RBA would judge the time to pull the trigger has been reached.” he predicts.