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For the first time in almost two years the Reserve Bank of Australia (RBA) signalled that the Australian dollar wasn't overvalued in its monthly monetary policy statement, sending a clear signal to markets that further interest rate cuts are unlikely to be needed to smooth out the imbalances Australia's economy has faced over the last few years.
Minutes from the bank's August 4 meeting when the bank left the cash rate at 2.0%, released on Tuesday, signalled that the central bank is much more comfortable with how the economy is evolving, with the weaker level of the Australian dollar and record-low interest rates stimulating demand.
Last week China embarked on a new strategy for settings its daily currency rate which would help to support its export sector by bringing the currency closer to its market value. Last week the Chinese Yuan was devalued by close to 3%, sending shockwaves through the markets, and causing panic among China's largest import nations, including Australia.
The other major risk to Australia, and particularly the course of the Australian dollar, is the timing of the Fed's first rate hike, which is widely expected to come in September.
