[ForexNews]

The minutes of the RBA’s December Board meeting suggest that its three consecutive rate hikes from October to December were designed to provide it with flexibility – the potential to pause – at future meetings: “Members saw this (December) adjustment, together with those in the preceding two meetings, as materially shifting the stance of policy to a less accommodative setting and, therefore, as increasing the flexibility available to the Board at future meetings". Board members also believed the arguments for a record third consecutive rate hike were “finely balanced".

This rhetoric is consistent with view that the RBA is likely to pause at one of its two meetings in Q1 10 – potentially, the February meeting. This is one of the reasons some expect the AUD to underperform other commodity currencies in the coming months, especially the CAD. BoC is expected to pull back from its dovish policy stance in Q1. The CAD also will benefit from a recovering US economy, while there are risks of a policy tightening in Asia that could dampen market expectations for growth in the region and weigh on the AUD.

The RBA’s minutes remained upbeat and supportive of a further gradual tightening of policy, and market continues to expect the RBA to reaccelerate its tightening cycle in Q2. International and domestic activity were said to still be recovering more quickly than the RBA expected, and the central bank felt that underlying inflation is likely bottom out lower than it had forecast earlier. Importantly, the RBA looked through the decline in domestic investment in Q3 and pointed to stronger investment, in particular in the mining sector, going forward.

The minutes also said that even taking into account the rise in lending rates over and above the RBA’s own tightening, due to banks passing on their higher funding costs, most lending rates were "still noticeably below normal".