Meeting Minutes Bring Surprise

With the RBA having kept rates unchanged for 18 consecutive policy meetings, marking the longest stretch that rates have remained static in the bank’s history, the release of the latest RBA meeting minutes were not expected to deliver any new information. However, the April RBA minutes show board in favor of Rate Rise. The minutes released overnight did, in fact, prompt some market movement as bulls were unexpectedly given a vital sign that things might be moving in their favor.

For the first time, the minutes revealed that the RBA board now explicitly acknowledges that “it was more likely that the next move in the cash rate would be up, rather than down”. On face value, this might not seem important, as the RBA governor has been saying this for quite some time. However, this is the first time that the board has expressed support for this view and now confirms the RBA’s shift towards a tightening bias, in line with what we are seeing across the majority of G10 central banks.

RBA Still Concerned

However, the bank does still express concern for a number of factors, among these is the slow progress in unemployment and inflation, noting that “there was not a strong case for near-term adjustment in monetary policy”.

On a further encouraging note, the drop in Sydney and Melbourne house prices were put in an historical context with the minutes noting “that declines in house prices of around 10% in some cities had occurred several times over the preceding 15 years or so” adding that the fact that price declines had been more severe for higher-end properties. This indicates “that the regulatory measures.. had not been the sole drivers of the slowdown” with a handful of members noting that “structural factors had also been at work”.

Regarding the recent lift in short-term interest rates, there was very little discussion, with the impact noted as fairly limited given that the “major banks’ marginal cost of debt funding increased a little over the preceding month”.

Elsewhere, the statement remained broadly unchanged from last time around with the RBA noting a generally positive economic outlook with positive expectations for wage growth and inflation. The RBA though did note that “progress in lowering unemployment and having inflation return to the midpoint of the target was expected to be gradual”.

Summary

In all, the minutes certainly highlight a positive development within the RBA’s move back toward policy normalization though for now, it is clear that the bank has no intention to act on its tightening bias. Uncertainty regarding household spending is likely to keep the RBA penned in until wage growth meaningfully accelerates, and the bank becomes comfortable with how the move from interest-only loans to principal loans is impacting.

Technical Perspective

AUD/USD price action has been frustrating over the year so far with the strong rally seen initially having quickly reversed. Price has been caught in choppy corrective action over the few months with little in the way of strong directional moves. Notably, all declines have been strongly bid back up within the bearish channel/falling wedge pattern. The next major support zone is around the 0.7641 area where we have long-term rising trend line support running from the 2016 lows, local trend line support from mid-2017 lows and structural support from the March low.