Australian Dollar Trades Higher on RBA decision

The cash rate has been kept at 2 percent since a quarter-point cut in May and the market was split 60 percent to 40 percent for keeping rates on hold or cutting today.

"If the unemployment figure increases again this month, I think Australian consumers can look forward to an interest rate cut in the first week of December; an early Christmas present!"

"Australia's central bank Governor Glenn Stevens said accommodative monetary policy is likely to be appropriate 'for a few time yet, ' while adding the macroeconomic impact of recent mortgage rate increases by major banks 'may not be large, '" reports Michael Heath for Bloomberg.

The economy is expected to grow 2-3% in the year through June 2016 before picking up pace to 2.75-3.75% in the year through June 2017. The Reserve Bank observed that inflation is low and should remain so.

The country's currency, still known as the Australian dollar as of this writing, popped after the news as currency traders took advantage of mismatched expectations.

Despite core inflation of just 2.1% being marginally inside the RBA's target range of 2% to 3%, the RBA was happy to keep record-low 2% official interest rates as they were.

The growth forecast for the year to December 2015 has been lowered to 2.25% from 2.50% in the August SoMP.

"One such occasion was in May 2012, when the Reserve Bank Board wished to ensure that the economy received a worthwhile stimulus from a policy easing after a period in which lending rates had tended to increase even while the cash rate had been steady", he said.

The outlook on inflation is also supportive - the inflation rate is running at 1.5 per cent, which is well below the RBA's target band of 2-3 per cent.

However, Stevens also said surveys had suggested a "gradual improvement" economic conditions over the past year, a slightly more upbeat view than in recent months when Stevens merely said that the moderate economic expansion was continuing, accompanied by rising employment.

The problems are so deep that Australia's new prime minister, ex-investment banker and barrister Malcolm Turnbull, backed his whirlwind run for office on fixing them.

While the overall net effect on the outlook for interest rates is fairly neutral - the implications for economy growth are unambiguously positive.

Moreover, the weak CPI and risks of further deflation provide the rationale, given Macquarie observes other major central banks with strengthening economic activity and clear upward inflation trends in their jurisdictions are considering the case for further easing.

"The RBA seems more likely to wait until February when it will have another inflation number which will likely confirm the lower than previously anticipated inflation trajectory", says Emmett.

The September quarter inflation outcome was lower than expected.