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Forex Flash: RBA not in position to provide additional stimulus following mining peaks – UBS

The capital expenditure report published by the Australian Bureau of Statistics overnight confirmed that Australia's mining investment boom is about to peak, if it has not done so already. However, investment is not poised to collapse afterwards - rather, the report suggests the peak will be followed by gradual decline or even a flattening.

According to Research Analyst Gareth Berry at UBS, “This suggests no imminent need for the RBA to provide additional stimulus, and our Australian economics team stick to their view that the cash rate has now bottomed at 3%. Our Australian rates strategy team note that 13 bp of cumulative easing is currently priced in over the next two RBA meetings. They have just entered a trade recommendation to pay April OIS in the expectation that the RBA will not cut over that time horizon.

Over the course of seven quarters, miners are asked repeatedly to estimate how much they will spend on capital investment during a given financial year. Three estimates are supplied before the financial year begins, and four more are made as the year progresses. The report overnight provided the fifth such estimate for the current financial year, and the first estimate for the following financial year. Although the levels are falling, the pace is gradual and arguably less pronounced than the RBA had feared.

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