Australian Dollar strengthened after minutes from the RBA’s December 6 policy meeting presented a mixed assessment of the overall economic environment and pointed to several areas of strength. Immediately following the release, the Aussie rose from 0.9910 to 0.9931 versus its US counterpart.

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In the minutes, the RBA noted the continuing deterioration in the Eurozone debt crisis through November but adopted a more positive outlook toward the Asian economies. Despite signs of a slowdown in the Asia-Pacific region, RBA policymakers continued to see “solid” expansion in Australia’s top export markets, which “did not suggest any strong need to cut interest.” On the domestic front, the central bank assessed recent data as “mixed but, on balance … slightly stronger than … around the middle of the year,” citing the recent strength in business investment, not only in mining but also in manufacturing. At the same time, Board members recognized tighter credit conditions, softness on the property market, and mixed consumer sentiment as areas of weakness in the domestic economy, while expecting wage pressures “to remain contained.” On the whole, the Board saw “scope for a modest reduction in the cash rate.”

Overall, the RBA’s statements suggest that the central will adopt a “wait-and-see” approach ahead of its next policy meeting on February 7. Since its last rate decision, however, important economic indicators have exhibited further weakness, with November employment figures showing a loss of 6,300 jobs and an uptick in the jobless rate, and a Westpac index pointing to a plunge in consumer confidence in December. Should key indicators continue to lag, and should Chinese economic activity continue to cool, the RBA could very well contemplate further cuts in its benchmark rate, a prospect that would be expected to cap any significant gains in the Aussie.

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Courtesy Yahoo Financial News

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