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Forex Flash: AUD strengthens following RBA decision - BTMU

Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the Australian dollar was strengthened modestly in the Asian trading session following the stronger than expected Australian retail sales report for January and the RBA’s decision to leave monetary policy unchanged at today’s meeting.

He comments that the report revealed that retail sales expanded by a stronger than expected 0.9%M/M in January driven by smaller store sales. However it follows three consecutive months of contracting retail sales at the end of 2012 which was the weakest period since the end of 1999/ early 2000. He writes, “The contraction in sales recorded in December was also revised down in today’s report to -0.4%M/M. Overall the trend in retail sales growth still remains weak. With domestic demand momentum remaining weak, the RBA decided to leave monetary policy unchanged at today’s meeting leaving its key policy rate at 3.00% which was largely as expected by market participants.”

Furthermore, Hardman comments that the accompanying policy statement was also largely unchanged from its last meeting in February with the RBA still maintaining a bias to ease monetary policy further ahead if required. He quotes the RBA as writing, “The inflation outlook, as assessed at present, would afford scope to ease policy further, should that be necessary to support demand”, and noting that it will continue to assess the outlook for the Australian economy allowing it more time to judge the stimulatory impact of prior easing that has already been implemented. He feels that overall, today’s meeting has not changed his view that the RBA will lower its key policy rate towards 2.50% during 2013 modestly weighing upon the Australian dollar.

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