THE TAKEAWAY: RBA minutes cites concerns about “two-speed” economy > Dovish bias maintained > AUD dips lower
The Australian Dollar dipped lower as minutes from the RBA’s May 1 meeting painted a broadly cautious view of the economy and solidified the RBA’s bias toward further easing.
Chart generated using FXCM Strategy Trader. Bar denotes time of Minutes release.
In the statement, the RBA noted that the Australian economy continued to grow “modestly,” but drew a sharp distinction between the mining industry and sectors not related to natural-resources extraction. While the former “remained exceptionally strong,” the central bank projected growth to remain below trend in the latter, citing the construction, manufacturing, and retail sectors. In addition, the RBA provided a pessimistic outlook for the real-estate market, seeing “little prospect of an imminent recovery in housing construction.” On the labor-market front, the bank acknowledged the improvement in receent months, but, in view of the stress in non-mining areas of the economy, forecast only “modest” further pickup.
Overall, as a result of its generally soft outlook for economic conditions moving forward, the monetary authority continued to maintain a generally benign outlook for inflation, thereby keeping the RBA’s bias toward additional rate cuts intact. Markets have already taken the bank’s outlook in stride, with overnight index swaps predicting more than 100 bps of cuts over the next 12 months. These expectations, in addition to the possibility of further deterioration in the Euroepan situation, do not bode well for the Aussie in the near term.
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