Growing signs that low interest rates are finally having a positive impact on the economy could be short-lived if the political stalemate in the US drags on and the Australian dollar continues to strengthen.
The Reserve Bank of Australia (RBA) left the cash rate at an all-time low of 2.5 per cent at Tuesday's monthly board meeting, saying policy "remained appropriate".
But just 30 minutes before the widely expected decision, the US government began shutting down all non-essential federal agencies after failing to get its budget passed by Congress.
This will see over 800,000 US workers sent home unpaid.
Macquarie Research senior economist Brian Redican called it a potential "game changer" for the outlook if a reasonable outcome is not reached soon.
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"It's got be a major issue for them (the RBA)," he told AAP.
The US budget stand-off is a precursor to even more fraught negotiations to lift the $US16.7 trillion ($A18.04 trillion) US debt ceiling.
If no deal is reached, the US may begin defaulting on its debts by the middle of October.
"It doesn't really matter too much if the US government shutdown lasts a couple of days. It's whether we can take this as a sign of how those debt ceiling negotiations are going to go," Mr Redican said.
US President Barack Obama said the shutdown will have an immediate economic impact.
"It will throw a wrench into the gears of our economy at a time when those gears have gained some traction."
Of concern to the RBA in the short-term will be a renewed strengthening in the Australian dollar on the back of the US's fiscal problems.
RBA governor Glenn Stevens noted the dollar has risen in the past month, but was still about 10 per cent below its level in April.
"A lower level of the currency than seen at present would assist in rebalancing growth in the economy," Mr Stevens said in a statement.
There are positive signs in the economy - a modest strengthening in retail sales, house prices rising and the manufacturing sector growing for the first time in over two years.
Commonwealth Securities chief economist Craig James believes the economy has turned the corner.
"Provided the political wrangling in the US doesn't drag on, the outlook is encouraging," Mr James said in a note to clients.
Retail sales grew by a stronger than expected 0.4 per cent in August - to a near record $21.92 billion - led by a 6.4 per cent surge in spending in department stores.
Australian National Retailers Association chief Margy Osmond said the rise came despite the federal election campaign, which is traditionally a period where consumers are cautious.
"This is a result of the cash rate cut in early August, a more buoyant share market and consumers responding to the prospect of a new government with a clear mandate coming into power," she said.
