The Reserve Bank of Australia is notoriously conservative in its moves. This makes the analysis of their board’s thinking all the more important, as their commentary has a stronger impact on the markets. Traders often focus on the outlook the most. Changes in the outlook are able to move AUD pairs over 100 pips! So tomorrow’s release of the minutes from the last RBA meeting is going to get a lot of attention from traders.
It’s the first important bit of data that we get for the week. After that, the currency will be largely left to its own devices from an economic calendar perspective. So, we could see the currency setting the tone for the next several days following the release of the minutes.
When and How
The minutes will be released at 03:30 CET (or the day before at 21:30 EST.) It usually takes the market a couple of minutes to process everything, during which we’d likely see any volatility that the minutes might cause.
What analysts are looking for, as always, are any changes from the prior statement. However, that is not considered all that likely, since there was an important change in the prior meeting. The conservative bank likely will want to keep things calm at least until the next meeting. Therefore, this release might not have as much market effect as the last one.
Matters of Interest
The minutes to be released are from the last meeting in April. And it was the meeting in March where the bank took what was billed as a more dovish stance. At the time of that meeting, there was a series of disappointing data that justified that position. However, there have been some improving signs since then. So, we’re going to be looking at how the bank’s members interpreted the new data.
The other factor to consider is that just last week, we had RBA officials talking up the economic numbers and giving a positive outlook. This led some to speculate that hopes of a nearer-term rate cut were now off the table. The question is whether this was a matter of personal opinion, or whether we will see a reflection of that in the minutes, which would be interpreted as a more hawkish stance from the bank.
The market priced in the positive comments from last week. So a more positive outlook from the bank might be seen as a repeat, and simply solidify the market position instead of driving it higher. On the other hand, if the minutes show a negative outlook, the market could interpret this as old news. Consequently, it would have less of an impact. Both scenarios lead to the supposition of a more muted response in the market.
The RBA Isn’t So Relevant for the AUD
Either scenario doesn’t have as much of an immediate impact on the exchange rate, since the next change in rate policy would be quite far off, in any direction.
More immediately and directly, the Australian economy is being impacted by geopolitical concerns. This is especially true when it comes to trade. The trade dispute between China and the US remains, and Chinese nationals are hesitant to invest overseas. This was an important source of capital flows for Australia, so the status quote will also remain. However, a resolution in the trade dispute would lead to a strong response in the currencies. And, that change in trade demand with associated capital flows would alter the RBA’s perception.
With recent positive news on negotiations between Beijing and Washington, putting too much weight on the influence of potential RBA rate changes on the currency might not be the most prudent. This especially true since the timeframe given by the central bank for the next move is beyond the expected date of a positive resolution of the trade dispute.