Aussie may not gain much from RBA’s rate hold

Today Reserve Bank of Australia (RBA) kept its policy rate on hold at 2.25 percent. Australian dollar is enjoying bids on the news so far.

Key notes -

• RBA acknowledged the weakness in the economy in Australia and globe despite accommodative monetary policy.

• RBA confirmed its observation of weakness in the GDP growth and some deterioration in Unemployment situation in Australia.

• Despite the hold in policy rates, this is not a move to neutral stance. Instead RBA could further reduce the policy rates in the coming meetings.

• Today's statement showed that RBA is not concerned over the weak Australian dollar and its potential to cause inflation instead advocated for further reduction in the exchange rate. This so far has been shrugged off.

• The central bank went ahead in mentioning that lower exchange rate is required to balance the economy and despite the fall, Australian dollar is still overvalued against other counterparts.

Aussie is currently trading at 0.783 up nearly 1% for the day against dollar. With central bank's dovish view the currency is not expected to gain much. Gains would come from a broad based decline in US dollar. Failure to break above the resistance of 0.792 could induce sharp fall in the currency.