It’s a common reality in the forex markets, central bank decisions sway their respective currencies. And the upcoming Reserve Bank of Australia meeting next week won’t be an exception. So, will it present a short term buying opportunity for those bullish the Australian dollar?

Very much so.

LOOKING BACK
In the last monetary decision, which took place at the beginning of this month, Governor Glenn Stevens and other monetary policymakers decided to keep the overnight cash rate at 3.5%. The decision followed two major reductions in the OCR in both May and June of this year which were predicated on a growing recession in the Australian economy – higher unemployment and lower manufacturing gains. Subsequently, the August decision sparked some speculation that the RBA was only suspending its rate cutting scheme, setting up the economy for at least one more round of easing before the yearend. But, now, Australia is expanding closer to trend and employment is back on the rise. The recent spate of data is likely to reinforce the notion that additional time is needed before any other policy decision can be made.

GREEN SHOOTS
Notably, the international scene has also become “more subdued,” taking away from the need for more stimulus. Although risks continue to surround the European Union and the China, there are slivers of hope that both will come out on top. Specifically, China, a main Australian trade partner, has shown slight signs of improvement in recent manufacturing reports – negating the notion of a collapse.

HOLDING STEADY
With both domestic and international risks held at bay, it is likely that the Reserve Bank of Australia will leave interest rates alone again next week. The sentiment should give some impetus for a correction of the near 3.1% downturn since the beginning of August.

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