RBA almost certain to cut in October?

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The Australian’s Uren wrote on Monday that the RBA was almost certain to cut in response to QE3.

My guess is that tonight’s newspapers will echo these sentiments – explaining that the minutes show an RBA that’s concerned about the AUD and terms of trade being out of whack.

What does a too high AUD mean? It lowers the return on capital and so dampens Investment – and that’s exactly what the Bank pointed at in today’s minutes … that the investment outlook for both the mining and non-mining sectors had weakened.

Will they cut in October? That depends on the relativity between the AUD and the terms of trade. It seems they were very close in September, and let’s face it when you think the RBA will go in a few meeting’s time they usually go at the next meeting …

I don’t think the investment projects that have been stopped will be re-started, so i think the recent bounce in Iron Ore prices is not as potent as the decline.

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6 comments

  1. It would also counter the contractionary fiscal policy particularly as you have pointed out it hits harder later

  2. If the RBA is concerned about the dollar why punish savers with a rate cut? They should simply stand in the FX market and set the currency where they think it is appropriate.

  3. Gentlemen an inverted yield curve is only of relevance when the RBA raises short rates above bond yields.

    Take it from an old yield curve junky

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