RBA minutes hint at a period of wait and watch, going forward

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The Australian dollar was a bit volatile in today’s Asian trading session as the RBA released its monetary policy meeting minutes. The Aussie retreated from its previous highs above 0.8 psychological round number levels as the US Dollar was seen paring some of its losses from early last week across the board. Most of the USD cross currencies, including the Australian dollar were visibly weaker since the start of Monday.

The RBA released the meeting minutes from its monetary policy decision held earlier in the month which saw the Central Bank cut interest rates by 25bps to take the overnight cash rate for Australia to historic lows of 2%, from 2.25% previously.

RBA Interest Rates, 2012 - 2015
RBA Interest Rates, 2012 – 2015

The main talking points of the RBA’s meeting minutes were:

Labour Markets: The board acknowledged a pick up in the labour markets and that it was consistently stable. But low wage growth, which is expected to remain for a while could keep the labour markets subdued. The board expected the Australian Labour markets to growth at a modest pace in the coming months but that the unemployment rate could initially rise before it starts to improve.

Inflation: The board viewed the most recent inflation data which saw the inflation rate fall to 1.3% from 1.7% as being in line with expectations and cited lower fuel prices as one of the reasons for the decline in inflation. The board expects to see headline inflation to remain below the 2% target through most of 2015

On the reason for taking the decision to cut interest rates, the board noted that despite the recent economic data being fairly positive, due to the indications of weaker capital spending in both mining and non-mining sectors, growth was expected to be subdued over a prolonged period of time including wages and inflation. Based on this, the RBA decided for the case to ease monetary policy.

The meeting minutes signed off noting that the board wasn’t going to go much into the details for providing forward guidance and that there is still scope for further appropriate policy actions going forward, remaining very vague for market participants.

However, going by the tone of the statement, it is likely that the RBA will now keep its policy changes on hold and wait for more clear direction from the US Federal Reserve where there is still hope for a rate hike later this year, if not in June.

The AUDUSD continued to drift lower, posting close to three straight days of losses after failing to break above 0.8133, and was seen trading near 0.7991 at the time of writing. Later this evening, US economic data will be the main driver of prices as building permits and housing starts are due for release.


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