RBA signals that it remains comfortably on hold for now – MUFG

Lee Hardman, Currency Analyst at MUFG, suggests that the main event in the Asian trading session has been the RBA’s latest policy meeting at which it left its key policy rate unchanged at 1.75%.

Key Quotes

“The accompanying policy statement was also left largely unchanged signalling that the RBA remains comfortable to maintain its current policy stance in the near-term. The RBA acknowledged that “financial markets have been volatile recently as investors re-priced assets after the UK referendum” but has been reassured that “most markets have continued to function effectively”.

The RBA appears cautiously optimistic that the negative impact on Australia’s economy will be limited stating that “any effects of the referendum outcome on global economic activity remain to be seen and, outside the effects on the UK economy itself, may be hard to discern”.

The RBA gave no strong signal that it is moving closer to easing monetary policy further in the  near-term adding only  that “over the period ahead, further information should allow the Board to refine its assessment of the outlook for growth and inflation and to make any adjustment to the stance of policy that may be appropriate”.

With the RBA happy to keep its policy rate unchanged in the near-term and overseas central banks pursuing looser monetary policy for longer it is helping the Australian dollar to trade on a firmer footing. The Australian dollar is also deriving support from relatively stable global financial market conditions which are supportive for carry demand; and from the modest rebound in commodity prices so far this year.

The latest business confidence surveys from China have provided further encouragement for the Australian dollar. It was revealed overnight that the Caixin services PMI survey from China increased by 1.5 point to 52.7 in June reaching its highest level since July of last year. It follows the more modest improvement in the official non-manufacturing PMI survey by 0.6 point to 53.7 in June which moved only marginally above its average over the last year of 53.5. In these circumstances, we expect the AUD/USD rate to continue grinding higher into the high 0.7000’s.”