Australian Dollar Focus Elsewhere as RBA Minutes Stick to Script

Australian Dollar, RBA Minutes Talking Points:

• The RBA reiterated that rates will probably stay low for an extended period

• Local futures markets would have expected nothing less

• AUD/USD reaction was very muted

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The Australian Dollar was steady Tuesday following the release of minutes from the last Reserve Bank of Australia policy meeting which cautioned again that interest rates were likely to remain low for ‘an extended period.’

The minutes covered the August 6 meeting at which the Official Cash Rate was held at the new record low of 1% in place since July‘s reduction, itself one of two back-to-back monthly cuts. The RBA said it would consider further policy easing ’if needed but that it would have to assess developments in both the domestic and global economy before considering another cut.

The Australian futures market now fully prices two further quarter-percentage-point reductions by early 2020. However, the RBA continued to place great emphasis on the labor market in its deliberations and that has been shown since the last policy meeting to have held up rather well. While the RBA continues to flag up the importance of these numbers it is perhaps difficult to see further cuts being delivered for as long as job creation remains strong.

Assuming the central bank doesn‘t row back any of the labor market’s importance it seems reasonable to expect that further cuts will come now only if international conditions deteriorate markedly.

The RBA also noted the low level of the Australian Dollar in the market and said that this was likely to support both exports and tourism.

The AUD/USD market clearly found little to concern them in the minutes. Like many other sectors it may well already be focused on events at Jackson Hole towards the end of the week. The Kansas City Federal Reserves annual central bank get together is due and many heavyweights are due to speak, including of course Fed Chair Jerome Powell. Aussie-watchers must wait until Sunday when RBA Governor Philip Lowe makes his contribution.

On its daily chart the Aussie remains a macrocosm of recent risk-asset action more broadly. The currency has risen somewhat from the notable lows hit earlier this month as trade and recession worries roiled global markets again. The pair has settled into a holding pattern, where it may well stay at least until the market assesses what it hears from Wyoming.

Still, the currency clearly still lacks any prospect of clear interest rate support and the broad downtrend entrenched since early 2018 looks safe enough. With inflation still low despite record low rate, suspicions will persist that the RBA is in no way averse to this long slide as it will at least spur prices on the import side.

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