The Reserve Bank of Australia (RBA) released its minutes from its policy meeting earlier this month, which showed that the bank is maintaining its current neutral policy stance. The RBA reiterated that the most likely course was likely to be a period of stability in interest rates, and it appears to be waiting to see what impact the already very accommodative level of monetary policy has on the economy. The board did state that it’s hard to judge the extent to which the current level of stimulus would offset the anticipated substantial decline in mining investment and the effect of the government tightening its purse strings, thus they defiantly aren’t completely ruling out the possibility of lower interest rates.
The RBA reframes from talking down the Aussie
The RBA reiterated that “the exchange rate remained high by historical standards, particularly given the declines in key commodity prices, and was therefore offering less assistance than it otherwise might in achieving balanced growth in the economy.” The market may have been expecting a bit more commentary from the bank on the Aussie after the RBA Governor Stevens’ recent jab at the commodity currency, thus the lack of a more aggressive statement about the Australian dollar could have caused the slight jump in the AUD immediately after the release of the meetings. Nonetheless, the RBA has expressed concern about jawboning the currency, thus the board can’t get too aggressive in its meeting minutes or it may lose credibility with the market.
Overall, today’s minutes didn’t give much away, thus we retain our view that the RBA is likely to remain on hold for the time being. There is a chance that the RBA will turn more dovish if there is a prolonged period of depressed economic data, but this would have to be beyond the current estimates of below trend growth and the somewhat subdued outlook for most parts of the economy.
The Aussie’s initial jump higher on the back of today’s meeting minutes quickly came undone. In fact, it was a textbook example of a knee-jerk reaction. Nonetheless, AUDUSD may be coming to the end of its recent consolidating phase as it awaits the release of important US and Chinese data.
Tonight the market will have its eyes on retail sales and manufacturing figures out of the US, as well as a speech by Fed Chief Yellen. Tomorrow the focus of investors shifts to a barrage of potential market moving economic numbers out of China. China’s Q2 GDP data will be especially important for the Australian dollar (more details tomorrow).
· US June retail sales (1230GMT) – exp. 0.6% m/m
· US July Empire Manufacturing Index (1230GMT) – exp. 17.0; prior 19.28
· China June retail sales (0200GMT) – exp. 12.5% y/y
· China June industrial production (0200GMT) – exp. 9.0% y/y
· China Q2 GDP (0200GMT) – exp. 7.4%; prior 7.4% y/y