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RBA Minutes shows no hurry to cut interest rates

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The Reserve Bank of Australia released the monetary policy minutes of the recently concluded meeting earlier in March. The minutes of the meeting showed that the RBA members were in no hurry to cut interest rates and in fact preferred to wait and see the effect of the most recent rate cut in February while also making the case that it would give the Central Bank more time and data to weigh in on future course of action.
The RBA’s minutes showed that it expects global inflation to remain subdued in the near term on account of weaker energy prices but would have a positive effect on net importers including countries such as Japan and Europe. The RBA’s inflation target range is between 2 and 3%, while the latest figures show the inflation rate at 1.7% in the most recent quarter, down from 2.3% previously.
Domestically, the RBA expects spare capacity in the labor markets to linger for a while along with the fact that wages needed to improve as it sees household debts continue to outweigh the incomes.
The RBA’s minutes also reflected on the now prominent theme of the exchange rate and that a lower currency rate was required in order to sustain the economy.
In regards to the interest rate decision, the RBA’s minutes showed that the members were aware of a rate cut expectations by the markets in May.
The next meeting for the RBA is scheduled for April 7th and ahead of the meeting, key data includes Building Approvals, New home sales and private sector credit, all of which could possibly play a role in the next RBA’s meeting. The quarterly GDP for Australia released after the March 3rd monetary policy meeting showed a subdued but modest pick up to 0.5%, up from a revised 0.4% the previous quarter.
RBA Interest Rate Expectations
The ASX 30 day interbank cash rate futures yield curve shows the markets are expecting the RBA to cut rates around May – June 2015, taking the overnight cash rate from the current 2.25% down to 2.175 – 2.05%.

asx-30-day-ib-cash-rate-futures

 

Aussie Reaction to the RBA Minutes

Although there was nothing too dovish in the RBA’s minutes, the Australian Dollar weakened on the release, dropping from the daily open at 0.7642 to set a session low to 0.7625 before trimming some of its losses. The recovery is however likely to be short lived as technically, the AUDUSD chart shows a break of a minor trend line as well as the formation of a bearish flag pattern on the 4-hour charts, which points to a potential weakness setting in, that could take the Aussie down to 0.755 levels at the very least. The immediate support level for the declines, come in at 0.7615 which was briefly tested and rejected. A break below 0.7615 could pave way for a clear dip to 0.7557 which would be a new yearly low for the Aussie.

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