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Australian Dollar Dips On RBA Lowe Comments, Fed Firmly In Focus

Australian Dollar Dips On RBA Lowe Comments, Fed Firmly In Focus

2018-06-13 03:43:00
David Cottle, Analyst
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AUSTRALIAN DOLLAR TALKING POINTS:

  • RBA Governor Lowe said that next rate move probably a rise, but it won’t come soon
  • Markets already knew this, but fact that he gave no hint of disagreement whatever sent AUD/USD down
  • Lowe was upbeat on investment and business activity

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The Australian Dollar edged lower Wednesday, if not for long, after Reserve Bank of Australia Governor Philip Lowe reminded markets of what they already knew.

Speaking in Melbourne, Lowe said that, while the next move in Australian interest rates was still likely to be an increase, such a thing would probably not come for some. Now, rate-futures markets don’t in any case fully price even a quarter percentage point increase in the 1.50%, record-low Official Cash Rate until October 2019. Still, the fact that the RBA seems to agree that a move could be at least that far away saw AUD/USD slip a little.

Australian Dollar Dips On RBA Lowe Comments, Fed Firmly In Focus

AUSTRALIAN DOLLAR VS US DOLLAR, 5-MINUTE CHART

The reaction was quite muted though, as it was perhaps always likely to be as markets worldwide look ahead to the US Federal Reserve’s June monetary policy decision. That will come in the early hours of Thursday morning for Asia Pacific markets.

STRONG JOBS, LOW WAGES CONUNDRUM ENDURES

Speaking to the apparent conundrum evident across many developed markets of strong employment growth but modest wage rises, Lowe said that a sustained pickup in consumer prices was likely to require stronger wage gains. He did say that there were “reasonable grounds” to expect just that, however.

The RBA Governor also warned that weak wage growth was diminishing the sense of “shared prosperity” in the country, and said that a return to wage increases of 3% or more would be both possible and desirable. However, with consumer price inflation running at just 1.9%, it seems unlikely that Australian firms will feel obliged to offer such inflation-busting pay settlements much as the RBA might like them to.

Lowe did take pleasure in current elevated levels of investment and business activity, however.

AUSSIE CONSUMER CONFIDENCE RISES AT LAST

Earlier Wednesday came news that Australia’s consumer confidence clocked its first rise for three months in June. The index on the subject from major local lender Westpac rose 0.3% on the month. However, Westpac said that available evidence doesn’t point to a sustainable rise in demand. This won’t be welcome news at the RBA. It forecasts above-trend growth both this year and next, at least partly predicated on a rise in consumption.

Despite a gradual uptick in May and June, AUD/USD remain in the broad daily-chart downtrend channel which has persisted since mid-February and which itself is just a continuation of the slide from January’s highs. An upside test seems to have failed at the highs of June 7.

Australian Dollar Dips On RBA Lowe Comments, Fed Firmly In Focus

AUSTRALIAN DOLLAR VS US DOLLAR, DAILY CHART

Should the Fed do as is almost universally expected later and raise interest rates, focus will of course be on how many more times it might do the same this year. In any event the contrast between it and the RBA will remain stark, and suggest strongly that the overall backdrop tends toward further Aussie Dollar weakness.

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--- Written by David Cottle, DailyFX Research

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