AUD declines on dovish RBA minutes
The Australian dollar (AUD) declined by 30 pips to 0.7960 at the time of writing as financial markets took profit on recent gains after a relatively dovish RBA minutes. The RBA noted that the China’s property market has continued to be a source of weakness in the economy and represented a key source of uncertainty for the outlook. In addition, despite a recovery in prices of Australia’s key commodity exports, the terms of trade is expected to decline further. On the housing market, the RBA stated that house price growth outside of Sydney and Melbourne has declined and that housing credit growth for owner occupiers and investors have remained stable in recent months. We think that this probably gave the central bank comfort to lower the Official Cash Rate by 25bp to 2.0% earlier this month. Furthermore, forward looking measures of business confidence had remained below average and non-residential building approvals were relatively low. As a result non-mining business investment was expected to recover later than previously assessed in February. With regards to monetary policy, the RBA stated that though monetary policy decision would not contain any guidance on the future path, this does not limit the scope for any action that might be appropriate at future meetings. Looking ahead, we continue to expect another 25bp rate cut in the third quarter of this year. As this is not fully priced in by financial markets, a weaker AUD is expected later this year.