AUD/USD Drops After RBA Minutes Reveal a Dovish Tone
June 26, 2018 12:43 amVideo
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Early this month, the RBA met and agreed to leave interest rates unchanged. Since then, the AUD/USD pair has fallen from a high of 0.7674 to a low of 0.7392. The current price is the lowest the pair has been since May last year.
Today, the Reserve Bank of Australia (RBA) released the minutes of the 5th May meeting. In the minutes, the officials omitted a key line that have been in their minutes in the previous minutes. In the May, April, and March, the statement has concluded with the following statement:
“In the current circumstances, members agreed that it was more likely that the next move in the cash rate would be up, rather than down.”
In the statement released today, the officials removed this line, giving an indication that the officials could maintain the ultralow interest rates for a longer period.
The officials believe that the GDP was expected to have picked up by about 2¾ in the first quarter. This would be higher than the 2.4% gain in the fourth quarter. The growth in the GDP will be as a result of the increase in export volumes, which will be a reversal from the past decline. It will also be supported by increased consumption, public demand, and business investment. In May, the Australian government announced a $25 billion investment in infrastructural projects, which has been positive for the economy. Federal and state government budget proposals have continued to suggest an emphasis on increased infrastructure spending.
In addition, business optimism in the country has remained at the highest level since the start of the financial crisis a decade ago. Non-mining capital expenditure has continued to increase while profits in the mining sector has been resilient. However, there are still concerns among investors about the recently-started trade war between the United States and its closest allies. In April, the retail sales were moderate, partly because of the unseasonably warm weather that subdued the sales of clothing and other departmental stores.
As the officials have reiterated in the previous meetings, there is concern about housing especially in the established markets of Sydney and Melbourne. In Melbourne, the falling house prices has happened in the inner cities while in Sydney, the declines have been widespread.
Other than the housing in Sydney and Melbourne, the officials were concerned about the slow pace of wage growth. In the first quarter, wages were up by just 2.1% In the recently-released inflation in the country, the number was lower than what was expected. In April, the CPI rose at an annual rate of 1.9%, which was lower than the expected 2.0%.
The Australian dollar could remain at depressed levels against the dollar as the RBA and the Fed take a diverging approach to monetary policy. Last week, the Fed announced that it would increase interest rates two more times this year. This was higher than what most analysts were expecting.
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