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James Hyerczyk

The Australian and New Zealand Dollars trended lower on Monday as traders continued to be unimpressed with the progress being made between the United States and China to end their lengthy trade dispute. There were no fresh economic reports in the United States or Australia, so much of the focus was likely on the release of the minutes of the August Reserve Bank of Australia monetary policy meeting on Tuesday at 01:30 GMT. Later in the week, New Zealand will release data on quarterly retail sales.

At 19:56 GMT, the AUD/USD is trading .6763, down 0.0019 or -0.29% and the NZD/USD is at .6404, down 0.0021 or -0.33%.

What to Expect from the RBA Minutes?

A 01:30 GMT, the RBA will release the minutes of its latest policy meeting at which it left rates unchanged, while signaling room for more cuts. Since the August 6 meeting, we’ve heard comments from RBA Governor Lowe and RBA Assistant Governor Guy Debelle. Both reiterated the Bank’s stance in favor of further downward adjustments in the cash rate to support inflation, currently at 1.6% versus the 2-3% target.

In its August monetary policy statement, the RBA said, “The recent inflation data were broadly as expected and confirmed that inflation pressures remain subdued across much of the economy. Over the year to the June quarter, inflation was 1.6 percent in both headline and underlying terms. The central scenario remains for inflation to increase gradually, but it is likely to take longer than earlier expected for inflation to return to 2 percent. In both headline and underlying terms, inflation is expected to be a little under 2 percent over 2020 and a little above 2 percent over 2021.”

In its last monetary policy statement, the policymakers also said, “It is reasonable to expect that an extended period of low interest rates will be required in Australia to make progress in reducing unemployment and achieve more assured progress towards the inflation target.”


Expect Dovish Tone

We’re looking for the minutes to have a dovish tone, however, the RBA said it would make lower adjustments to rates “if needed”. This does not reaffirm that the central bank is still looking to cut rates aggressively at its next meeting in September.

Recently, Reserve Bank Governor Philip Lowe said he’s still prepared to reduce Australia’s record-low interest rates further if needed, though he signaled the economy could be through the worst of its slowdown.

Furthermore, Lowe’s remarks “confirmed an easing bias and willingness to cut further to meet the RBA’s objectives, but did not appear to signal any urgency,” said Su-Lin Ong, head of economic and fixed-income strategy at Royal Bank of Canada in Sydney. “Their base case appears to be a hope that monetary and fiscal stimulus will see firmer growth ahead.”

Daily Forecast

The RBA minutes should offer nothing new for investors and should take on a somewhat dovish tone. However, the primary focus for investors this week will be speeches by Governor Lowe and Fed Chair Jerome Powell at the Jackson Hole Symposium.

The Aussie and Kiwi are likely to remain mostly dependent on U.S.-China trade news, the direction of global bond yields and demand for risky assets.

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