The Takeway:The RBA minutes highlight concerns over mining sector and labor market -> Australian economy is susceptible to external shocks -> AUD/USD rose slightly higher
The Australian dollar rose slightly higher on RBA policy minutes in February, highlighting inflationary outlook for the economy would afford scope to ease policy further. In particular, mining industries and the labor market are the major concerns for Australia, in which the limited increase in commodity prices would weigh on the economy. The minutes have limited effect on the Aussie as the content is largely in line with expectation. According to a RBA’s reflections on China and mining investment in Australia on Feb 15, they expected themining investment to reach a peak a bit earlier than expected this year and at a lower level of around 8 percent of GDP. As of recent, Australian Treasurer Wayne Swan implied the possibility of a further rate cut in an interview with CNBC on Saturday, where he mentioned some of the challenges that the Australian mining and tourism sectors are facing.
The timing of the next rate cut will be based on the economic outlook going forward. A 25 basis point rate cut will diminish the attractiveness of the Aussie, yet it would still offer the highest yield compared to its counterparts. Forex traders will pay more attention to Australian’s fundamentals for long term buying opportunities. The market is pricing in 27 percent probability that the RBA will cut rate by 25 bps in their March 5 meeting.
After the release of the policy minutes, the AUD/USD rose 9 pips, trading at 1.03204.
AUD/USD 1 Minute Chart
Charted Created by Robin Leung using Marketscope 2.0