What You Need to Know About the June RBA Statement

If you somehow missed yesterday’s RBA statement, or if you’re just interested in some of the details that convinced forex traders to send the Aussie higher after the RBA announced that they would maintain the cash rate at 1.75%, then here are a few things you need to know about RBA Governor Glenn Stevens’ June statement.

Views on financial markets

In Stevens’ previous press statement, he said that “Sentiment in financial markets has improved,” but “uncertainty about the global economic outlook and policy settings among the major jurisdictions continues,” which is a kinda dovish statement.

For the June statement, however, he omitted that phrase and simply said that “conditions have generally been calmer for the past several months,” which is a noticeably more neutral in tone. Stevens then added that “Attention is now turning to some particular event risks.” He didn’t name these “event risks” or how they will affect Australia, though, so we’ll have to wait until the RBA meeting minutes come out on June 21 for that.

Views on the Australian economy

Regarding GDP, Stevens recognized that there was “a very large decline in business investment,” but noted that Australia’s economy continues to grow, pointing to domestic demand, as well as exports, which climbed to a seven-month high of 26,734 million Aussie dollars as of April.

Stevens then acknowledged that jobs data were “more mixed” lately, which is what I also pointed out in my most recent economic snapshot for Australia. But despite fewer hours worked and steady losses of full-time jobs, as well as the labor force participation rate dipping to a 10-month low of 64.9%, Stevens said that the jobs data “are consistent with continued expansion of employment in the near term,” so the RBA doesn’t seem to be too concerned (yet), which is a sign of confidence.

Regarding inflation, Stevens just said that inflation is low and “is expected to remain the case for some time,” so nothing has apparently changed after the RBA revealed that it downgraded its 2016 inflation target range from 2-3% to 1-2% in its Quarterly Statement on Monetary Policy.

As for the housing market, Stevens noted that housing prices were on the rise, but he implied that there’s minimal risk of a housing bubble since he expects that a “considerable supply of apartments” would soon put a damper to this.

Minimal jawboning

Stevens usually uses the RBA statement as an opportunity to try and talk down the Aussie, but such jawboning was very minimal in June’s RBA statement since Stevens (just like last time) only noted that a stronger Aussie “could complicate” the rebalancing in the Australian economy, which refers to the shift away from being too dependent on the resources sector for economic growth.

No forward guidance

Stevens ended his statement by saying that “the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and inflation returning to target over time,” which is a very neutral statement and offers no hint whatsoever on the future direction of monetary policy.

Neutral tone overall

Forex traders were already expecting that the RBA would maintain its monetary policy, so the RBA’s tone was in focus during the RBA statment. And since RBA Stevens was incredibly neutral and balanced as can be, forex traders who shorted in the hopes that the RBA would have a dovish stance likely called it quits and pushed the “get me outta here” button while those in the sidelines used the lack of foward guidance and the minimal jawboning on the Aussie as an opportunity to jump in.

AUD/USD 15-minute Forex Chart

AUD/USD 15-minute Forex Chart

Bonus: Spot the Difference!

You don’t actually have to do that since I already did that for you, but here it is, just in case you want to see the actual press statement with the differences highlighted. Do note that words or phrases in red are additions introduced in the June statement while those which have a strike-through are from the previous release.

At its meeting today, the Board decided to lower the cash rate by 25 basis points to 1.75 per cent, effective 4 May 2016. This follows information showing inflationary pressures are lower than expected leave the cash rate unchanged at 1.75 per cent.

The global economy is continuing to grow, though at a slightly lower pace than earlier expected, with forecasts having been revised down a little further recently at a lower than average pace.

While Several advanced economies have recorded improved conditions over the past year, but conditions have become more difficult for a number of emerging market economies. China’s growth rate moderated further in the first part of the year, though recent actions by Chinese policymakers are supporting the near-term outlook.

Commodity prices have firmed noticeably from recent lows are above recent lows, but this follows very substantial declines over the past couple of years. Australia’s terms of trade remain much lower than they had been in recent years.

Sentiment in financial markets has improved, after a period of heightened volatility early in the year. However, uncertainty about the global economic outlook and policy settings among the major jurisdictions continues.

In financial markets, conditions have generally been calmer for the past several months following the period of volatility early in the year. Attention is now turning to some particular event risks.

Funding costs for high-quality borrowers remain very low and, globally, monetary policy remains remarkably accommodative.

In Australia, the available information suggests that the economy is continuing to rebalance following the mining investment boom. GDP growth picked up over 2015, particularly in the second half of the year, and the labour market improved. Indications are that growth is continuing in 2016, though probably at a more moderate pace recent data suggest overall growth is continuing, despite a very large decline in business investment. Other areas of domestic demand, as well as exports, have been expanding at a pace at or above trend.

Labour market indicators have been more mixed of late, but are consistent with continued expansion of employment in the near term.

Inflation has been quite low for some time and recent data were unexpectedly low. While the quarterly data contain some temporary factors, these results, together with ongoing veryGiven subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast this is expected to remain the case for some time.

Monetary policy has been accommodative for quite some time. Low interest rates have been supporting demand and the lower exchange rate overall has helped is helping the traded sector. Credit growth to households continues at a moderate pace, while that to businesses has picked up over the past year or soOver the past year, growth in credit to businesses has picked up, even as that to households has moderated a little. These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this.

In reaching today’s decision, the Board took careful note of developments in the housing market, where Indications are that the effects of supervisory measures are strengthening lending standards and that price pressures have tended to abate in the housing market. At present, the potential risks of lower interest rates in this area are less than they were a year ago. Separately, a number of lenders are also taking a more cautious attitude to lending in certain segments. Dwelling prices have begun to rise again recently. But considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities.

Taking all these considerations into account of the available information, and having eased monetary policy at its May meeting, the Board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and inflation returning to target over time.