Few hints from the RBA

The release of the RBA’s June meeting minutes was the highlight of the session, as it momentarily turned investor attention away from the European debt crisis. However, the response from the market was limited and short lived. AUDUSD monetarily jumped higher, but the somewhat ambiguous nature of the minutes brought the pair back down.

Overall, the RBA minutes did not point significantly in either direction in terms of future policy decisions, but it did provide an insight into the mind of the board. The members noted that domestic conditions remained mostly unchanged since they last meet, adding that economic data had been mixed. But they also highlighted that conditions offshore deteriorated, and may hinder domestic growth down the track. The bank also apparently expects conditions to continue to deteriorate in Europe. Furthermore, the bank is clearly concerned about the growth story in China, whilst the board also noted that the US recovery has slowed somewhat.

However, the board also added that it may want to wait and see what effects recent rate cuts will have on the domestic economy, which may cause them to hold off cutting rates in the next couple of months. This view is supported by the fact that the bank highlighted the divergence between domestic conditions and those in Europe and China. Hence, whilst we expect another one or two rate cuts this year, we do not expect the bank to ease policy next month.

AUDUSD jumped to around 1.0140 following the announcement, but price action was not strong enough to see the pair push through its overnight high. The pair did, however, gradually climb higher throughout the session. The slow sell-off of USD pushed EURUSD through 1.2600, after dropping below this level overnight. We suspect around 1.2750 may be the next significant resistance level for EURUSD.

Gains for risk assets were generally limited by negative sentiment stemming from Europe. Overnight, Spanish borrowing costs rose to a record level, thus investors will be keenly watching the bond markets tonight for any more signs of stress.

Source: Forex.com

18.06.2012