(This is an excerpt from an article I originally published on Seeking Alpha on October 2, 2012. Click here to read the entire piece.)
I expected the Reserve Bank of Australia (RBA) to stand pat on rates in its latest statement on monetary policy. Instead, the RBA cut rates by 25 basis points to 3.25% and, in the process, the RBA clarified that it is indeed interested in working the Australian dollar (FXA) lower in the face of weakening global economic conditions. {snip}
Overall, the RBA seems to have backed off from its more optimistic assessment of the Australian and Chinese economies that I read in the minutes from the previous statement on monetary policy. {snip}
Moreover, the RBA seemed to imply in this statement that there is some sizable chance that the non-mining sector will not be ready to pick up the anticipated slackening in the resource sector next year…{snip} {snip}
The upshot of these downward revisions is a more bearish outlook on the Australian and the global economy. {snip}
Source: FreeStockCharts.com
So with the RBA’s latest statement, I increase my bearish from marginal to “mild.” {snip}
Finally, given the tight correlation between the S&P 500 (SPY) and the Australian dollar, my shift in bias also implies that I will be shifting toward a bearish bias against the stock market in the near-term.
Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha on October 2, 2012. Click here to read the entire piece.)
Full disclosure: short EUR/AUD