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Australian Dollar Gains on RBA Minutes, Labor Data Up Next

Australian Dollar Gains on RBA Minutes, Labor Data Up Next

David Cottle, Analyst


Talking Points

  • AUD/USD got a boost from the latest RBA minutes
  • The central bank was quite upbeat about the global and domestic economies
  • It’s still very worried about household balance-sheet stretch though

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The Australian Dollar gained Tuesday following the release of minutes from the Reserve Bank of Australia’s last monetary policy conclave which saw the central bank quite upbeat about domestic economic prospects, even if it stuck to its usual caveats.

The RBA kept interest rates unchanged at their 1.5% record low on July 1, but then took the chance once again to worry about the negative effects it feels a stronger currency would have on the Australian economy. This is hardly a new theme for the central bank, it has warbled it at may points in AUD/USD’s long climb up to current altitude. However, the rhetoric has been dialled up somewhat in recent weeks as the Aussie topped two-year highs against the greenback and declined to fall far.

The RBA noted improvement in the global economy, particularly in China and the Eurozone, and said that recent data suggested better domestic growth in the second quarter. This is possibly what supported the currency in the aftermath.

However, the minutes said house prices and household debt levels warranted “careful monitoring” and that expectations of low wage growth coupled with high debt levels could rein in consumer spending.

Essentially the RBA is still fretting that the high cost of home ownership, along with subdued wages, is making the going tough for domestic demand. It wasn’t all gloom though even here. The RBA said recent, strong employment data could see wages rise. Official labor-market numbers will be released Thursday in the next obvious risk event for the local currency.

There was also the now almost customary warning that further Aussie Dollar strength could mean weaker inflation and slower growth.

RBA Governor Philip Lowe has pointed out that he reserves the right to intervene in the foreign exchange market in extreme circumstances, albeit that he does not view those circumstances as pertaining now. This has left the Aussie caught between investors, who’d probably like to buy it, at least in their more “risk on” moods and the central bank, which clearly doesn’t want to see too much more strength.

On a daily technical chart, AUD/USD remain in clear retreat from recent, two-year highs. However, it has not fallen very far and support is holding even at current, relatively lofty levels. Strong employment data late this week could see that support consolidate, while weakness may see it give way at last. You can join us for coverage of those employment data at the dailyFX webinars.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter: @DavidCottleFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.