AUD Softer After RBA Meeting Minutes Show High Bar to an August Rate Cut


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The Australian Dollar is on the defensive after the Reserve Bank of Australia released its June meeting minutes, however, weakness might prove shortlived.

Recall that the RBA's June meeting was deemed 'hawkish' as the decision to hold interest rates was finely balanced. The Aussie Dollar rose in response, with markets seeing increased odds of another rate hike from the RBA before year-end.

But the finer details from the meeting have prompted market participants to pare some of that earlier 'hawkishness'. The swaps market is pricing 25% odds of a 25 bp RBA policy rate increase at the next August 6 meeting.

"AUD/USD eased towards 0.6630," says Carol Kong, a strategist at Commonwealth Bank of Australia. "The RBA’s June meeting minutes were not as hawkish as some had anticipated."

The Pound-Australian Dollar exchange rate (GBP/AUD) rose to 1.9011 and the Euro-Australian Dollar (EUR/AUD) was higher at 1.6144.



"AUD/USD is trading on the defensive near the middle of its multi-week 0.6575-0.6700 range on broad USD strength. The RBA June meeting minutes offered more details behind the bank’s hawkish hold," says Elias Haddad, Senior Markets Strategist at Brown Brothers Harriman.

Haddad notes that a major reason RBA members thought the case to leave the policy rate unchanged was stronger than a hike was the "uncertainty around the data for consumption and clear evidence that many households were experiencing financial stress."

"The Minutes to the RBA’s June meeting show the Board is very reluctant to raise rates," says David Forrester at Crédit Agricole. "Members are more concerned about the upside risks to the unemployment rate than inflation and are hoping the latter comes back down to target."



Nevertheless, the RBA did not rule out interest rate hikes. In fact, after no discussion to hike the cash rate in March, the discussion returned in May after stronger Q1 24 CPI data and stronger non-consumer related data.

The Australian economy has since produced an above-conensus monthly inflation print since the RBA's June outing and there is a limited likelihood that markets completely dismiss the odds of an August rate hike.

This can support the Aussie Dollar in the coming weeks, particularly if global economic growth trends continue to improve.

"Australian price growth accelerated to its fastest in six months in May, knocking markets off balance and raising the likelihood of another rate hike this year," says Karl Schamotta, Chief Market Strategist at Corpay.

A concern for the RBA is that Australians earning less than A$150K are set to benefit from changes to the stage-three tax cuts package from July, which can further stoke demand in the economy.

"With the RBA expected to be the last to ease financial conditions among its peers, AUD’s resilience continues to show with a solid floor above the 0.65 level versus USD, targeting the 0.68-0.69 area in the pair," says a note from Citi. Strategists at the bank say they are positioned for an ongoing rebound in the AUD.


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