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Australia: Domestic optimism off-set by global concerns - ING

FXStreet (Delhi) – James Knightley Senior Economist at ING, notes that the RBA left policy unchanged with concerns in China/Eastern Asia being offset by a strong labour market and a weaker currency.

Key Quotes

“The Reserve Bank of Australia has acted aggressively this year in response to China growth concerns that have prompted sharp falls in commodity prices and seen investment in the Australian resource sector being scaled back significantly. However, this morning’s RBA policy meeting statement seems to suggest that the central bank is pretty content with the situation right now.”

“Although it continues to warn of weakness in Chinese and East Asian demand, outside of the resource sector the growth story isn’t looking too bad. Certainly the 50bp of rate cuts implemented this year and the weaker currency (down 9% YTD on a trade weighted basis) have been providing support - so much so that employment has continued to rise. The RBA also site the strong credit conditions and rising property market in major cities.”

“Nonetheless, worries about China are not going to disappear quickly and there are signs of global growth moderating more broadly so we wouldn’t be surprised to see the RBA step in with one further rate cut this quarter. Indeed, the RBA continue to suggest that the economy will be operating with spare capacity ”for some time yet” and that inflation will remain consistent “with the next one or two years, even with a lower exchange rate”.”

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