[cppene]

The RBA Board delivered a much-anticipated third consecutive 25bp cash rate increase to 3.75%. A bullish growth assessment and outlook was tempered somewhat by a neutral conclusion.

The absence of a strong tightening bias is a clever strategy to discourage market expectations for an aggressive tightening cycle. This approach is likely to preserve – or mildly dent - already high confidence levels in businesses and consumers.

After this historic occasion of the RBA lifting the cash rate over three consecutive monthly Board meetings, market expects the Board to occasionally pause throughout 2010, although still achieving a cash rate of 4.5% by June, and a cash rate of 5.25% by December 2010.

Markets look for a flatter yield curve in 2010 as the market re-prices the interest rate outlook, although bonds are looking increasingly rich. Traders continue to target the AUD to appreciate to $US0.95 by mid-2010, as the cash rate differential to the US escalates to nearly 450bp.