Forex Flash: Look for new language on China in RBA statement - Westpac

FXstreet.com (Barcelona) - While markets are pricing about 15% chance of a rate cut, the RBA shouldn't struggle too much with its decision to hold the cash rate at 3.5% at 4.30GMT, says Sean Callow, Westpac FX strategist.

As seen by Mr. Callow: "All indications from the RBA in its many public statements last month were that it was very comfortable with current policy and we are waiting for important domestic data including GDP in employment. Yet China's data and the sliding iron ore price suggest the RBA was too upbeat with its 7 Aug view that 'China's growth has moderated to a more sustainable pace, but does not appear to be slowing further.'

Westpac will be looking for new language on China, "with the change quite possibly sparking knee jerk AUD selling" Mr. Callow notes. "We will also watch for any sign of increased concern over AUD relative to Aug's line that the 'exchange rate, however, has remained high, despite the observed decline in the terms of trade and the weaker global outlook.' Market pricing is close to Westpac's view, with -59bp by year end (Westpac -50bp)."