Australian central bank keeps interest rate on hold

The Reserve Bank of Australian (RBA) maintained interest rates on hold, as expected by market consensus. However, there was a change in tone. Previously, the policy adopted by the RBA was one of luxury – a wait and see approach.

Seeing recent economic data would suggest that if inflation comes in below trend rate of 2-3%, then there will be a high likelihood of rates being cut by around 25 basis points in May. The RBA also said the terms of trade have probably peaked but remain high. Commodity prices are also off their peaks but stable at very healthy levels for the economy.

On China, the RBA said growth was likely to remain at more “measured and sustainable” levels in the future. We interpret that as being sub 10%, which is in line with market expectations anyways.

The overall tone of acknowledging growth below expectations, despite not cutting, sent the Australian dollar lower. It last traded at 1.0395 against the US dollar after trading above 1.04 for most of the trading day.

The Euro remained unchanged at 1.3335 against the US dollar while the Japanese Yen staged a late rally, with the US dollar last buying 81.95.

In commodities, gold gained slightly, as did copper which now looks to settle above US$3.91/lb – a very healthy level.

We spoke with Discovery Metals CEO Brad Sampson this afternoon to ask about the copper and silver miner’s prospects and project ramp up in Africa. Sampson said he remains quite comfortable with the current copper price and sees continuing strong demand for Chinese buyers.

He notes ongoing supply challenges in larger mines and diminishing grades. Discovery has around 40% of its initial production ramp up hedged at around US$4.01/lb – mainly for project financing requirements – but hopes to maintain as much leverage to copper price movements as possible.