The RBA and the Aussie: The Saga Continues

Today's RBA minutes could bring some rest-bite for the Australian dollar or add further downside - speculators will decide which as they look for clues and hints from RBA commentary.

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We'll be covering today's RBA minutes in detail - firstly what's expected and then following the release, we'll analyse the content. For a detailed background of the RBA's July 2nd meeting, read our article 'Can today's pivotal RBA decision rescue the Aussie?' where we discuss the RBA's policy stance and how it is likely to evolve.

What's expected?

RBA minutes from its July 2nd meeting will be published today at 02:30 GMT / 11:30 AEST and will further clarify the RBA’s stance on monetary policy. The chances for rate cut at the August meeting have risen significantly from around 20% to around 75% this morning. The minutes are expected to confirm the RBA's dovish stance and cement a rate cut for the August 6th meeting.

Possible outcomes

With so much bearish sentiment, talk and positioning surrounding the AUD, the risk of a further significant leg lower in AUD/USD is unlikely. It's hard to imagine the RBA minutes being more dovish than expected because the commentary from RBA members is already very accommodative. Futures markets have already priced in further rate cuts so for AUD to decline further we would have to see even stronger hints of rate cuts - the RBA is aware of the market speculation and accompanying AUD weakness so they are more likely to come across neutral/hawkish. Given the extreme AUD short positioning, event risk is for AUD to appreciate sharply this morning as comments from the previous RBA meeting disappoint speculative AUD shorts.

Data since RBA meeting on July 2nd

The employment rate has risen (5.6% to 5.7%) in July but the headline employment change beat expectations (10,300 actual vs. 300 exp.) in the same month.
Retail Sales (0.1% actual vs. 0.4% expected)
Trade balance (0.67bn actual vs. 0.05bn expected)
Building approvals (-1.1% actual vs. -0.9% expected)
Home Loans (1.8% actual vs. 2.3% expected)

Australian macro data has been fairly mixed but broadly positive since July 2nd which adds weight to the argument that the RBA's stance is simply more neutral than the market is pricing in. We see a good chance of the market realising that today and helping AUD recover some of its recent losses.

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Commissioned by Think Forex

Written by George Tchetvertakov

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