The minutes of the last RBA meeting were released early this morning. Although investors did not have huge expectations as the RBA already made clear on a number of occasion it will adopt a wait-and-see approach, it is the occasion to get an update about the view of the central bank on the economic outlook.
According to the minutes, the economic growth was in line with forecast (+0.8% in the June quarter) thanks to a pick-up in consumption and net export, while members acknowledged the solid growth in both full and part-time employment. Nevertheless, they express worries regarding the high level of household ineptness. All in all, the minutes suggest that members consider the overall situation as improving but did not forget to reiterate that the appreciation of the Australian dollar will impact negatively price pressures.
The strength of the Aussie reflects more the current weakness of the US dollar rather than a broad-based increase in demand for the Australian currency. Indeed, on a trade-weighted basis, although it trading with an upward bias for several years, the Aussie has stalled since the beginning of the year as investors do not anticipate the RBA to drop its neutral bias. In addition, according to the Overnight Index Swap, the market do not expected the RBA to lift borrowing rates before mid-2018 at least.
On Tuesday, AUD/USD consolidated at around 0.7850 after falling 0.50% on Monday. The currency pair is currently testing its 50dma, which stands at 0.7911. On the downside, a first support can be found at around 0.77-0.7684 (psychological threshold and 200dma).
By Arnaud Masset