Article Highlights

  • RBA minutes: Lower AUD needed to support inflation and trade
  • RBA policymakers not too concerned about house price bubble yet
  • Analysts concluded that RBA is maintaining its easing bias
  • New Zealand quarterly inflation expectations up from 1.8% to 1.9%
  • Japanese Finance Minister Aso: Fiscal policy changes needed to support QE
  • U.K. CPI figures up for release today
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Aussie traders seemed to brush off the downbeat RBA monetary policy meeting minutes released in today’s Asian trading session, as most forex market watchers have already heard all about it during the actual rate statement. As Governor Stevens mentioned a few weeks back, economic growth remains below trend, joblessness is expected to rise, and trade activity with China could slow down. No surprises there!

What’s interesting to note though is that policymakers actually debated whether to cut interest rates during their policy statement this month or to put it off until June, which would give them time to incorporate any changes in the government budget. In addition, RBA officials also noted that they aren’t too concerned about stoking a house price bubble by lowering rates, emphasizing that they are ready to work with housing market regulators to keep any risks contained. As always, policymakers reiterated that the Australian dollar’s appreciation is putting a negative drag on price levels and export growth.

AUD/USD managed to hold on to the .8000 handle (+0.03%) after the minutes were released while AUD/JPY is keeping its head above the 96.00 handle (+0.01%) for now. While the Aussie was able to sustain its gains against the euro and the pound, with EUR/AUD down 24 pips (-0.17%) and GBP/AUD lower by 2 pips (-0.01%), the currency gave up ground to its comdoll rivals. AUD/CAD is down 8 pips (-0.06%) and is testing support at .9700 while AUD/NZD is looking at a 50-pip loss (-0.49%).

Of course the Kiwi managed to draw some support from improved inflation expectations, which tend to translate to an actual pick up in consumer price levels later on. The reading climbed from 1.8% to 1.9% for the first quarter of this year, suggesting that a pickup could be seen in the coming months. NZD/USD is up 38 pips (+0.52%) and is closing in on the .7450 minor psychological handle.

Meanwhile in Japan, Finance Minister Taro Aso mentioned in his testimony that quantitative easing can only do so much in terms of shoring up inflation and growth. He added that fiscal policy changes and additional growth strategies must be put in place to help Japan ward off deflationary trouble.

Inflation could continue to be the talk of the town in the upcoming London trading session, as the U.K. is set to print its latest CPI readings. Headline inflation is slated to post another flat reading for April while the core CPI could hold steady at 1.0%, with any downside surprises likely to support the BOE’s prediction that price levels could continue to tumble for quite some time.

Do stay tuned for the release of the German and euro zone ZEW economic sentiment indices for May also since these could indicate whether investors and analysts are still optimistic that a sustained recovery will carry on in the region. Along with this, the final euro zone headline and core CPI readings are due and no revisions to the previous readings are expected. Be on the lookout for any potential surprises though!

U.S. Session Recap

Bonnie and Clyde, peanut butter and jelly, Justin Bieber and his hair. Some things just go well together.

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