RBA’s minutes offer green light to next month rate cut

Summary:

• The account of the latest RBA meeting shows the central bank sees employment growth slowing down
• The document also suggests that the upward trend in wages appears to have stalled
• Market-based expectations still not unequivocal when it comes to a cut next month

The Australian dollar is leading the losses the morning in the G10 space being down by more than 0.4% against its US counterpart. In part this is a result of rather dismal sentiment present across financial markets which has already been reflected in declines in Chinese indices. On the other hand, the account of the latest RBA meeting may also have contributed to this downside bias in the Aussie as the central bank confirmed it would consider further policy easing if needed in order to support growth and inflation targets. Moreover, it underlined that the upward trend in local wages growth appeared to have stalled and employment growth was also seen as losing steam. Let us notice that the labour market in Australia has been the big bright spot, hence if the underlying trend keeps reversing there, it could offer more food for thought for the Reserve Bank of Australia. On top of that, the minutes underlined that “recent outcomes suggest spare capacity remained in the labour market” and saw that “near-term weakness in high-density dwelling investment could sow the seeds of price upswing at some point”. All in all, we reckon that there is a high probability the RBA could cut rates in October and this scenario has yet to be priced in as market-based expectations assign only 34% chance for such a scenario.

The AUDUSD seems to be reversing after a short-term pullback. From this point of view one may suppose that the ongoing downward move could go as low as 0.6690. Source: xStation5