Rates in Australia will keep rising,but slower

Since March 2008 continuing bets the Reserve Bank of Australia will tight monetary policy way before other G7 countries fueled a spectacular 47% gain of the Aussie against the Dollar rising from 0.63$ and topping around 0.93$ last week. Indeed bets were accurate, the RBA raised rates for the second time with key rates now higher by 0.5% from their lows at 3.5%. However in the latest RBA meeting governor Glenn Stevens has somewhat eased the rhetoric on its intention to raise rates. The Governor has stated that the high Aussie rate now closer to parity with the Dollar has placed pressure on Australian exporters and kept inflation rather subdued. The message for the market was clear the RBA will continue to raise rates but very slowly and not at every meeting to avoid disrupting the recovery. In other words the RBA still sees the economy as rather fragile for a constant rate hike to the RBA “comfort” zone of 5%.Economic indicators are supportive of the RBA carful outlook with CPI (inflation) at 1.3% far lower than the RBA lower inflation target of 2% and retail sales trend an important indicator for consumer sentiment fell surprisingly by -0.2% versus an expected gain of 0.5%.Unemployment although surprised for the better declining to 5.7% it is still considered high for Aussie land. In a conference later in the week Stevens expressed more upbeat views on the Aussie economy and updated the RBA forecast of growth for 2010 upwards but this was largely expected. Indeed raising rates too rapidly could push the Aussie fast to test parity with the green back. But as it is still will unclear how successful will the Australian economy be at dealing with an Aussie close to 1$, market seem to expect rates to be raise slowly.CPI and unemployment are expected to lead with any negative surprises hampering bullish bets on the Aussie or at least putting the Aussie push to parity to a halt.