This month, the RBA extended its longest ever streak of keeping rates unchanged, a move which was widely expected by the market. Last time around, the RBA confirmed that policymakers now all agree that the next move in rates will be higher but that timing was highly uncertain as there are still key risks remaining in the economy such as low wage growth and weak household income. In light of this, the market was not looking for any big changes in the statement and indeed, there were none. However, looking closely at the details of the statement there is a very subtle, yet highly important dovish shift in the tone of the statement.
Areas of Concern Highlighted By The RBA
While the bank still maintained a generally upbeat outlook with GDP growth still projected to be above 3% for 2018-2019, the bank did highlight some areas of concern:
1 – The bank noted the continued and growing level of uncertainty in the global outlook linked to the international trade policies of the US and the subsequent trade stand-offs being seen with key trading partners such as China, Australia’s largest trading partner.
2 – The bank also noted increased signs of strain in emerging market economies linked to rising US interest rates and a stronger US Dollar
3 – On the domestic front the bank highlighted the increase in short term wholesale interest rates
4 – Weak household income was once again noted as a continuing source of uncertainty for the economy
5 – Wage growth was noted to be persistently weak and likely to continue to be so
6 – The bank forecasts Australia’s terms of trade to weaken over the coming years
7 – The Sydney and Melbourne housing markets were noted to have cooled, with prices having come off in both markets.
Essentially the bank maintains its view that the next move in rates will be up and noted that incoming data is generally consistent with the bank’s projections. On this front, the bank highlighted that the outlook for the labour market is still positive with forward looking indicators signalling strong jobs growth and a small decline in the unemployment rates. However, clearly the bank still has some concerns and some of the elements highlighted in the statement such as the level of uncertainty linked to the global trade environment pose some serious questions as there are no signs yet of any moderation here.
For now, it seems that the bank will continue to remain unchanged at its upcoming meetings, likely into 2019 and for traders looking to gauge the bank’s next move, the keys will be assessing the trajectory of incoming data and noting the bank’s assessment of the elements discussed above as we progress through the second half of the year.
The moves in AUDUSD have been well signposted over recent months with the pair respecting key technical levels. After breaking down through the rising trend line from 2015 lows, AUDUSD has been holding in a bearish channel which has framed price action over the last year. For now, the .7329 level mid-2017 low has provided support though it looks like the step-stair fashion move lower still has more to go. If price moves back below this level, the next key support will be the .7140s – .7170s area which was key support over 2016. To the topside, the next key resistance is sitting just above market at the .7498 level.