Reserve Bank Of Australia Minutes Fail To Provide Clues

 | Jun 21, 2022 07:01AM ET

It continues to be a quiet week for the Australian dollar, in sharp contrast to last week’s roller-coaster ride. AUD/USD has edged higher today, as the market response to the RBA minutes and a speech from Governor Lowe has been muted.h2 RBA minutes, Lowe offer few clues/h2

Anyone looking for some guidance from the RBA minutes came away disappointed, as the gist of the minutes was a defence of the surprise move to raise interest rates by 50bps at the meeting. The markets had expected a modest hike of 0.25%. The minutes noted that even with the supersize 50-bps move, the Cash Rate remained below 1%, and it was clear to members that policy remained highly stimulative and further rate hikes would be required. The minutes noted that the RBA was relying on strong consumer spending and a solid labour market to enable the central bank to continue to raise rates.

Inflation remains the RBA’s number one time on the agenda, with Q4 CPI rising to 7.0%. The minutes stated that the RBA expected inflation to continue to accelerate before easing and would move towards the top of the RBA’s target of 1%-3%. With an inflation peak still nowhere to be seen, the markets have priced in 95% odds of a 50bps move in July. RBC and Goldman Sachs are predicting a series of 50bps moves in July, August and September. It seems clear that the RBA will be in a very aggressive mode in the second half of 2022, which could provide key support for the Australian dollar.

In a speech after the minutes, Governor Lowe stated that a 75-bps hike was off the table in July. Analysts were quick to point out that Lowe only ruled out such a move in July, perhaps giving himself room for a super-size hike at a later date. Lowe also admitted that the exit from the RBA’s yield target in 2021 had been “disorderly” and the credibility of the bank had been damaged.