RBA Rate Cut Talk Pins Back the Aussie Dollar as Trade Remains in Focus

The RBA talks of rate cuts to pin back the Aussie Dollar as trade war jitters linger. Another quiet day on the stats leaves geopolitical risk in focus.
Bob Mason
Currencies Symbols

Earlier in the Day:

There were no material stats released through the Asian session to provide the majors with direction.

Outside of the numbers, the RBA released its monetary policy meeting minutes from the 7th May meeting.

For the Aussie Dollar,

The RBA monetary policy meeting minutes struck a dovish note, which was largely in line with the RBA Statement on Monetary Policy released back on 10th May.

Salient points from the minutes were as follows:

  • Growth in Australia’s major trading partners had slowed, largely attributed to slower growth in China.
  • Targeted stimulus measures in China appeared to be having an effect and global financial conditions remained very accommodative.
  • In advanced economies, inflation remained subdued in spite of strong labor market conditions and wage growth.


  • Household income growth had remained low and the March quarter inflation data indicated that inflationary pressures were lower than previously thought.
  • The Bank’s goals of reducing unemployment and returning inflation towards the midpoint are now anticipated to occur at a more gradual pace than previously expected.
  • GDP growth has been revised lower in the near-term but is expected to pick up to around 2.75% over 2019 and 2020.
  • The unemployment rate is expected to remain at around 5% over 2019 and 2020 before falling to 4.75% in 2021.
  • This implied spare capacity would remain in the economy for some time. On this basis, underlying inflation was expected to be 1.75% over 2019, 2% over 2020 and a little higher after that.
  • The central forecast scenario was based on the usual technical assumption that the cash rate followed the path implied by market pricing, pointing to lower interest rates over the next 6-months.
  • Members noted that there were risks to the forecasts in both directions.
    • Risks to the global economy remained titled to the downside.
    • Domestically, the outlook for household consumption remained a key uncertainty, with risks also titled to the downside.
    • On the upside, it was possible to combine the effects of continued accommodative financial conditions, the increase in Australia’s terms of trade, a renewed expansion in the resources sector and the expected lift in household disposable income. The combination would result in strong growth in output than in the central forecast scenario.
  • Members noted that a decrease in the cash rate would be appropriate if inflation did not move higher and unemployment trended higher.
  • Members agreed that it was important to continue to pay close attention to developments in the labor market.

The Aussie Dollar moved from $0.69228 to $0.69130 upon release of the minutes. At the time of writing, the Aussie Dollar was up 0.04% to $0.6911, with RBA Governor Lowe next up for the Aussie Dollar.


At the time of writing, the Japanese Yen was down by 0.07% to ¥110.14 against the U.S Dollar, while the Kiwi Dollar was up by 0.02% to $0.6535. The early moves came in spite of trade war jitters plaguing the global equity markets.

In the equity markets, the ASX200 gave up some of its Federal Election result gains, down by 0.2%, at the time of writing. The Nikkei was down by 0.32%, with the Hang Seng down by just 0.08%.

Bucking the trend early on was the CSI300, which was up by 0.67%, partially reversing Monday’s heavy losses.

The Day Ahead:

For the EUR.

It’s another quiet day on the economic calendar, with just the Eurozone’s consumer confidence flash figures due out later today.

With little else for the markets to consider, we can expect the EUR to remain sensitive to today’s data. Last month, the EUR took a tumble on weaker numbers.

Outside of the stats, market risk sentiment will influence through the day. On top of the trade war chatter, the EU parliamentary elections will likely begin to creep into the market’s purview.

At the time of writing, the EUR was flat at $1.1166.

For the Pound,

It’s a relatively busy day on the economic calendar. May CBI Industrial Trend Orders figures are due out this afternoon. While the figures have had a tendency to be overoptimistic, the BoE Inflation Report Hearings, taking place earlier in the day will likely overshadow the numbers.

BoE Governor Carney had recently spoken of the markets not reflecting a more aggressive rate path. An anticipated pickup in inflationary pressures is one of Carney’s concerns. Today’s hearings could raise the prospects of a near-term rate hike should the BoE see inflationary pressures building.

Geopolitical risk will remain the key driver, however. Theresa May’s Brexit deal, Nigel Farage and the Brexit Party and Theresa May’s successor are key drivers near-term. It’s a combination that continues to leave a no-deal Brexit scenario on the table…

At the time of writing, the Pound was up 0.02% to $1.2728.

Across the Pond,

May existing home sales figures are due out later this afternoon. While forecasted Dollar positive, the numbers are unlikely to have a material impact on the Greenback.

The extended U.S – China trade war continues to be the main area of focus. The fallout from Trump’s blacklisting of Huawei last week has been significant and this is likely to materially impact any progress on trade talks near-term.

At the time of writing, the Dollar Spot Index was up 0.02% to 97.954.

For the Loonie

It’s another quiet day on the economic calendar. The Loonie has found strong support from a pickup in crude oil prices, with a lack of economic data turning out to be a positive influence.

While concerns over the ongoing U.S – China trade war are negative, OPEC’s pledge to manage supply is positive. The Loonie’s going to need more than a pickup in crude oil prices, however, ahead of next week’s Bank of Canada monetary policy decision.

The Loonie was up 0.02% at C$1.3426, against the U.S Dollar, at the time of writing.

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