The RBA June monetary policy review saw very little in the way of new information and did little to move markets. As expected, the bank kept rates on hold at record lows of 1.5% for the twenty-first consecutive month, marking a fresh record for unchanged policy. Along with the unchanged decision, the bank made hardly any changes to the prior statement, refraining from updating its outlook on the global economy or adjusting its guidance on monetary policy.
Few Changes To Note
While changes to the statement were sparse, the statement did reaffirm the banks continued uncertainty regarding the domestic growth outlook specifically with the removal of the bank’s comment that the solid growth outlook “should see some reduction in spare capacity in the economy”.
The statement also saw the removal of the sentence noting that consumption growth had picked up, reflecting the softness in Q1 consumption growth. However, the bank did highlight the recent stability in the unemployment rate, removing the prior comment which referenced declines.
US Trade Tensions Highlighted
Notably, the statement did highlight the recent increase in market volatility around US trade tensions as well as European political developments and stress in emerging markets though concluded that financial conditions remain expansionary.
Housing Still An Issue
On housing, the statement noted that; housing credit growth had weakened due to investors, adding that “there may be some further tightening of lending standards”. The statement highlighted the ‘de facto monetary easing’ that is taking place due to falling average interest rates on outstanding mortgages. This is important as it will provide an offset for tighter financial conditions elsewhere in the housing market, through its impact on indebted cash flows.
GDP To Print 3% YoY
In terms of the growth forecast then, the bank still expects GDP growth to be just over 3% in 2018 and 2019 with wages and inflation to remain subdued then rise gradually over time. Referring to wage growth, the bank says that the latest figures are consistent with the view that the decline has now bottomed out, though the lag in inflation is likely to persist for longer.
Q1 GDP Partials Released
Alongside the meeting we also had the release of the Q1 GDP partials, which confirmed that trade added 0.3%, and that government consumption of 1.6% and -2% investment equals a public spend of 0.8% and adds 0.2% to the GDP.
If Q1 GDP prints strongly as this data suggests it might, the reaction (higher AUD/higher short-end bond yields) will likely be short lived, as the RBA already forecasts growth of 3% on the year. So, a strong print won’t necessarily be a surprise to the bank and Governor Lowe’s main focus is on a pick up in wage growth.
After forming a base around the .7498 level support, AUDUSD has since rebounded and rallied back up to retest the .7638 level resistance which was the March 2018 low. The level is just below a retest of the broken long term bullish trend line from 2016 lows as well as the resistance line of the short term bearish channel. Consequently, AUDUSD is sitting at a great deal of technical resistance and some consolidation at least is likely. If price does reversed lower form here, the short term bearish channel remains intact and traders will be looking for a break of the sub .7498 low in order to gather fresh downside momentum.