The release of the RBA minutes suggested that central banks decision to raise rates another 25bp to 4.75% was finely balanced as policymakers weighed the positive effects of further surge in resource investment against a more subdued economic backdrop. In assessing the situation the RBA noted that, 'As in October, a case could be made for waiting a little longer: the expected pick-up in domestic growth would be only in its early stages; the latest CPI outcome had been relatively good; and credit growth and housing prices were subdued. In addition, the exchange rate had appreciated over the past month, and quite significantly over a longer period, which would dampen inflation pressures somewhat."
The equivocation in the statement indicates that the RBA is likely to remain on hold for the rest of the year and perhaps all the way through the February meeting. Currently the markets are pricing in only 15% and 25% chance of any tightening through the start of next year. The RBA's hesitancy to raise rates further will only increase in light of the relatively weak employment data this month which showed a drop in full time employment and a rise in the unemployment rate to 5.4% from 5.1% the month prior. Additionally, the increase in mortgage rates beyond the pace of the cash rate hikes is also likely to have a material cooling effect on Australian housing demand going forward. Therefore, unless Chinese PMI demand shows a marked increase over the next several months the RBA will remain stationary for the foreseeable future.
The Aussie fell in the aftermath of the release and has remained weak for most of the Asian session trade as sharp decline in the Shanghai index caused a selloff in risk assets. The pair could remain heavy for the rest of the night if risk aversion flows continue with .9800 figure now key support that will be targeted by the shorts.