LTG GoldRock RBA Monthly update

The minutes from the RBA monthly March meeting were released yesterday with the Central Bank of Australia not discounting another rate cut choosing to conclude their statement with the following comments. “In considering whether or not to reduce the cash rate further at this meeting, members saw benefit in allowing some time for the structure of interest rates and the economy to adjust to the earlier change. They also saw advantages in receiving more data to indicate whether or not the economy was on the previously forecast path. Further, they noted the greater degree of uncertainty about the behaviour of borrowers and savers in a world of very low interest rates.

Taking account of all these factors, members judged it appropriate to hold the cash rate steady for the time being, while recognising that further easing over the period ahead may be appropriate to foster sustainable growth in demand while maintaining inflation consistent with the target.”

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LTG GoldRock Reviews the Aussie Dollar

The Aussie Dollar slipped lower yesterday at 11.30am on the news that wages growth in Australia is at the lowest pace in 16 years. Lower wages growth is likely to keep inflation low and could impact the RBA's thoughts later this year regarding interest rates if the unemployment level keeps going higher and higher. I am now calling for at another interest rate cut in 2014 and the wages index figure Wednesday only backs up these thoughts. I am not a doomsayer, I am a realist but the Australian economy is nowhere near the improved position some analysts say it is. 

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Kiwi Retail Sales keeps the Kiwi Dollar in check.

A weaker than expected Retail Sales number for New Zealand has held back the buyers from adding to their long positions leading into the official Kiwi interest rate announcement at the end of the month. The January Retail Sales figure was expected to show growth of 1.7% in January however the number that printed on computer screens was 1.2% indicating the Kiwis didn't spend as exuberantly in January as anticipated.

Will this alter the RBNZ's decision to begin raising interest rates "soon"?  No, the RBNZ has indicated that interest rates need to return to more normal levels and to expect a rise in the official interest rate by 2.25% over the next 2 years.

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What will the RBA do to interest rates today?

The Reserve Bank of Australia is highly likely going to leave the cash rate at 2.5% today but it is the statement that the market can't wait to read. I am sure you are well aware the RBA wants the Aussie Dollar at 0.85c or less to the US Dollar as this will have the impact on the economy Australia needs to balance things out and assist in a recovery. Yes, housing prices are rampantly rising in Sydney and the current 2.5% official cash rate is seeing some sectors of the country benefit, but the facts remain. Unemployment is rising, national debt is out of control, wages are too high, the cost of merely living in Australia is ridiculous compared to the rest of the world, manufacturing is continuing to go backwards and Australians are just simply not willing to spend or lend money at a rate that will help right the ship. Australia is currently very unbalanced economically and this needs to be addressed.

The RBA has a mandate of keeping inflation between 2% and 3% and the recent quarterly inflation figure spiked to 2.7%. Couple this with rising house prices and in a normal balanced economy this would be a recipe for a quick interest rates rise.

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Australia's unemployment rate rises once again.

Today saw the latest unemployment figures released for Australia and it was another trend higher for the official unemployment rate, this time up to 5.8% from 5.7%. But what was surprising was that the economy added 21,000 jobs last month which was much higher than the market expected.

A rising unemployment rate, weak jobs growth and an Aussie Dollar over 0.90c is only going to bring forward the chances of the RBA dropping interest rates or intervening on the Aussie Dollar to bring it back down into the 0.80c range. If the US Fed decides not to taper until February or March next year and the Aussie Dollar is still over 0.90c I will predict an interest rate cut in the month of February and an outright open intervention by the RBA which would mean it selling some of its Aussie Dollar reserves to push the Aussie Dollar lower. I encourage any trader with an open AUD short position to consider holding this position (do not adjust your stop loss wider) until December 18th because if the US Fed decides to taper the Aussie Dollar will likely fall further. If it does it may do the job that the RBA is trying to do, but it will be a wait and see game and I can't see any reason for the Aussie Dollar fundamentally to trend back higher at least until after the US Fed decision on tapering. If it’s “no taper”, the Aussie will find some buyers but if it’s “taper time” then the sellers are likely to hit it hard.

RBA Governor Stevens has said the RBA will consider an open intervention on the Aussie Dollar and I think the RBA is firmly and absolutely committed to doing what it takes to get the Aussie Dollar back below 0.90c and heading towards 0.80c. If the US Fed doesn't taper in December or January and the Aussie is still over 0.90c look out for an open intervention. Remember, don’t fight against what a Central Bank really wants, you will likely lose long term.

Each day +Andrew Barnett from +LTG GoldRock reviews the latest Forex news and provides the information to Members in the GoldRock Insider Report.

Economic Calendar for Tuesday 3rd December

• 11.30am   AUD    Aussie Retail Sales & Current Account data
• 12.00pm   CNY    Non Manufacturing PMI
• 2.30pm     AUD    Australian RBA Interest Rate Decision
• 8.30pm     EUR    UK PMI data

LTG GoldRock Reviews Today's RBA Decision.

At 2.30pm Sydney time today it is my view and most leading economists view that the RBA will leave the cash rate at 2.5% but I do believe they will once again try and talk the Aussie down. The economy is simply not strong enough with the Aussie perched above 0.90c and this will give the RBA another chance to kick it lower, so I expect a statement that reflects this view.