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18 Mar 2014
Flash: RBA minutes at the margin should support the AUD - RBS
FXStreet (Bali) - Greg Gibbs, FX Strategist at RBS, shres his view on today's RBA minutes.
Key Quotes
"The policy minutes indicated that data had improved, suggesting a somewhat better outlook. While they remain subdued on the outlook for mining investment, this has been in the forecast for some time. The minutes said, "Domestically, timely indicators were consistent with some improvement in economic conditions over recent months, and there were further signs that the expansionary setting of monetary policy was having the desired effects."
"The RBA emphasized, as Governor Stevens did in his recent parliamentary testimony, that the "cash rate could remain at its current level for some time". In the Stevens testimony he made a virtue of rates stability in creating certainty for the economy and boosting confidence. As such, it may take a substantial change in conditions to shift policy for the rest of this year."
"They have a very balanced outlook for inflation and growth. Low wages and a weaker labour market will keep a lid on inflation. But low rates were working well to restore demand in non-mining sectors."
"They reiterated that the currency is historically high, but they have been careful not to over-do commentary on the exchange rate. A lower exchange rate may be preferred, but the RBA is cautious not to promise on what it can't deliver."
"These minutes at the margin should support the AUD on the basis that rates are on hold and still offer a yield pick-up over major currencies. The RBA will not be doing much to weaken the currency unless it rises to levels where it might begin to damage confidence further. The AUD rose yesterday with one of the major banks sharply shifting its rates outlook for two further cuts this year to the next move being a hike in the later part of 2015. So the stable rates view is becoming consensus and thus the AUD upside might be limited by ongoing concerns over Chinese commodity demand."
Key Quotes
"The policy minutes indicated that data had improved, suggesting a somewhat better outlook. While they remain subdued on the outlook for mining investment, this has been in the forecast for some time. The minutes said, "Domestically, timely indicators were consistent with some improvement in economic conditions over recent months, and there were further signs that the expansionary setting of monetary policy was having the desired effects."
"The RBA emphasized, as Governor Stevens did in his recent parliamentary testimony, that the "cash rate could remain at its current level for some time". In the Stevens testimony he made a virtue of rates stability in creating certainty for the economy and boosting confidence. As such, it may take a substantial change in conditions to shift policy for the rest of this year."
"They have a very balanced outlook for inflation and growth. Low wages and a weaker labour market will keep a lid on inflation. But low rates were working well to restore demand in non-mining sectors."
"They reiterated that the currency is historically high, but they have been careful not to over-do commentary on the exchange rate. A lower exchange rate may be preferred, but the RBA is cautious not to promise on what it can't deliver."
"These minutes at the margin should support the AUD on the basis that rates are on hold and still offer a yield pick-up over major currencies. The RBA will not be doing much to weaken the currency unless it rises to levels where it might begin to damage confidence further. The AUD rose yesterday with one of the major banks sharply shifting its rates outlook for two further cuts this year to the next move being a hike in the later part of 2015. So the stable rates view is becoming consensus and thus the AUD upside might be limited by ongoing concerns over Chinese commodity demand."