RBA: Upbeat on Economy, Drought a Danger; Fed Bostic Expects One More Rate Hike in 2018

The Australian Dollar is climbing early Tuesday following the release of the Reserve Bank Monetary Policy Meeting Minutes. There were no surprises in the report so the price action is likely being driven by increased appetite for risky assets after last week’s steep sell-off drove the currency to a multi-year low.

At 0300 GMT, the AUD/USD is trading .7350, up .0011 or +0.15%.

The Reserve Bank of Australia reiterated that it had no plans to adjust monetary policy in the near-term and pointed to potential risks from global trade tensions and the impact of a drought that has hit rural Australia.

The RBA said its current monetary policy stance would continue to support economic growth and that it saw “no strong case for a near-term adjustment”.

Although the central bank reiterated it was not expecting to raise rates for some time, RBA Governor Philip Lowe on Tuesday told Australians “to make sure your finances can withstand a lift in interest rates” during a speech at the launch of the National Financial Capability Strategy 2018.

The minutes also showed RBA policymakers discussed the recent trade tensions saying, “the direction of international trade policy in the United States continued to be a source of uncertainty for the global outlook”. Policymakers also cautioned that while further proposed measures “were expected to be small, the broader risk of adverse effects on investment decisions and confidence had increased.”

The RBA minutes also mentioned the recent drought conditions in Australia, which have prompted farmers to slaughter animals, and was expected to have pushed up rural exports in the three months to June.

“This was expected to have contributed to a rise in rural exports in the June quarter. Members noted that the probability of an El Nino event, which would typically be associated with low rainfall in eastern Australia, had increased over 2018, implying downside risks to the forecasts for farm output and exports.”

U.S. Federal Reserve Speaker – FOMC Member Raphael Bostic

Atlanta Federal Reserve Bank President Raphael Bostic said on Monday he is maintaining his expectation for one more interest rate hike this year, as trade tensions and international events add some downside risk to an otherwise strong U.S. outlook.

“The risks are balanced in the sense that we had a significant stimulus through the tax reform and the spending package. That is all upside risk … Then you have all these other things going on to cause sort of an offset to some extent,” Bostic told reporters in Kingsport, Tennessee.

“I came in the year with three moves and I am still in that space.”