International Forex Inforamtion

As expected the RBA decided to keep the cash unchanged at 3% as Australia's economic conditions have 'not been as weak as expected a few months ago while 'growth in China strengthened' which have positively impacted Australia.

After cutting the policy rate by 25 bps in April, the RBA has left interest rates unchanged at current level for the 3rh consecutive months. Decisions by policymakers have been unanimous as they saw diminished downside risks to the economic outlook. In the accompanying statement, the central bank said that 'conditions in global financial markets improving this year and action to strengthen balance sheets of key financial institutions under way'.

Concerning domestic economy, the RBA acknowledged a pick-up in housing credit demand and increase in housing prices. Although economic conditions improved faster than previously anticipated, the RBA still has its worries. 'Output has been sluggish and capacity utilization has fallen back to about average levels, with some further decline likely over the rest of the year. Weaker demand for labor is leading to lower growth in labor costs. These conditions should see inflation continue to abate over the period ahead'.

In the last paragraph, the RBA said that 'outlook for inflation allows some scope for further easing of monetary policy, if needed. In assessing how it might use that scope, the Board will continue to monitor how economic and financial conditions unfold and how they impinge on prospects for a sustainable recovery in economic activity'. Although the RBA has reserved the right to ease monetary policy further if necessary, we find the tone is less strong than previous meetings. In June, RBA stated 'Nonetheless, the prospect of inflation declining over the medium term suggests that scope remains for some further easing of monetary policy, if needed. In assessing how it might use that scope, the Board will continue to monitor how economic and financial conditions unfold, and how they impinge on prospects for a sustainable recovery in economic activity'. In May, the central bank said that 'In assessing whether further reductions in the cash rate are required over the period ahead, the Board will monitor how economic and financial conditions unfold, and how they impinge on prospects for a sustainable recovery in economic activity'. Comparing the change in tones in the 3 meetings, we increasingly believe that the current easing cycle in Australia has probably ended.

In fact, the most critical issue that will trigger another rate cut is employment condition. Thursday's report should show that Australia's unemployment rate have risen to 6% in June, compared with 5.7% in May and a surprising drop to 5.5% in April. The unemployment rate has soared by 1.48 percentage point in the last 12 months and it's likely that unemployment will continue to head higher over the rest of the year. However, the pace of increase should slow down and the RBA may refrain from cutting rate by counting on this point.