Last night, the Reserve Bank of Australia released the minutes of its latest meeting, which took place on the day of the US presidential election, Commerzbank’s FX analyst Volkmar Baur notes.

RBA sees risks on both sides

“The minutes show that the central bank was aware of the uncertainties arising from international circumstances. Specifically, a sharp change in US economic policy and the size of the Chinese government's at that point yet-to-be-announced stimulus package were cited as sources of uncertainty. Risks have more or less materialized on both counts.”

“While the outcome of the US election and the US President-elect's nominations so far point to a rather unconventional economic policy, the Chinese stimulus package has been rather disappointing, especially with regard to the housing market. Despite the international headwinds, the Australian economy remains robust. Although growth has been somewhat disappointing of late, the labour market remains tight, employment growth remains strong and wage growth is correspondingly good.”

“All of this contributes to inflation continuing to move slowly towards the RBA's target. The RBA therefore reiterated that it is comfortable with the current level of interest rates and sees risks on both sides. I continue to expect that a weaker economy next year will prompt the RBA to move more quickly than it and the market currently expect, which should weigh on the AUD. The materialisation of risks in the international environment certainly supports this view.”