The RBA is stuck in the Federal Reserve's web

The Reserve Bank's wait-and-see approach to rates says less about the current domestic market and more about the Fed's taper timeline. If it's not careful, it could end up in interest rate no-man's land.

The Reserve Bank left rates unchanged at its board meeting earlier today, noting that despite a recent depreciation the Australian dollar "is still uncomfortably high". The tone of the governor’s statement was fairly neutral, which makes sense given the generally conflicting set of data that we have received recently. The bank doesn't meet again until February 4.

The economy appears tentatively poised right now, with enough signs that the rebalancing process is underway to be somewhat confident that the bottom won’t fall out of the economy but not enough signs to warrant raising interest rates.


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