RBA lifts rates to 6.75%

It will come as no surprise to anyone that the RBA lifted its cash rate to 6.75%. Glen Stevens statement was relatively hawkish, noting that underlying inflation would likely leave the target band and stating the growth would need to moderate before inflationary pressures would ease.

He was also quick to dismiss the artificial weakness in current inflation numbers, something that RBNZ governor Alan Bollard was unwilling to do last month. This illustrates that the tightening bias is currently a lot stronger in Aussie than in New Zealand.

I was glad to see the RBA lift rates in an election year, good on you RBA, showing everyone who’s the boss of Australian monetary policy. Although, I still think our Reserve Bank is better 🙂

So what does this mean for NZ? Well our dollar has jumped a cent to over $0.78US, which is interesting. However, our dollar has also crawled up a touch against the Aussie. Now I find it difficult to explain both at the same time, if I was just shown the Aussie one I would say that the lift in rates was already expected, and so any movements in the Aus/NZ rate were only compositional and had nothing to do with the release.

However, if someone gave me the NZ/US result I would have put it down to the lift in Australian interest rates, since our dollars tend to move together, and the lift in rates would have pushed up the value of the Aussie dollar. However, if the lift was expected, there should have been no jump in the Aussie dollar, and so no jump in the NZ dollar.

Can anyone come up with any theory of whats going on, I bet it has something to do with risk preferences doesn’t it 😉