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The Aussie lost pips against its major counterparts after the RBA’s meeting minutes painted a gloomier picture than the initial policy statement suggested.

  • RBA minutes reveal concerns over labour and housing markets
  • Asian bourses show mixed results on concerns over North Korea and Pence’s Japan visit

Major Events:

RBA’s meeting minutes – Earlier today the Reserve Bank of Australia (RBA) printed its meeting minutes for the month of April. If you recall, the central bank opted to keep its rates steady at 1.50% for a seventh month in a row, as it’s still “consistent with sustainable growth in the economy and achieving the inflation target over time.

Well, it seems like RBA members weren’t so confident after all. Specifically, the minutes detailed the members’ dilemma of needing to keep rates low to encourage consumer spending and pushing them higher to reduce housing-related risks.

On employment, RBA members noted that (emphasis ours):

“Although forward-looking indicators of labour demand continued to suggest an increase in employment growth over the period ahead, this had been true for some time without leading to an improvement in labour market conditions.”

Basically, the RBA is shrugging off the latest improvements in forward-looking labour indicators by saying that they’re (a) more optimistic than reality “for some time” and that (b) they don’t lead to improvements labour market conditions.

The RBA also shared its concerns over the housing market, saying that “funding costs had not changed significantly” despite tighter lending standards by the Council of Financial Regulators.

The RBA warned that “risks related to household debt and the housing market” have increased in the last six months but that the Council, which includes APRA, “would consider further measures if needed.”

The nail in the Aussie’s coffin today was the RBA’s choice to drop “Looking forward, year-ended growth was expected to pick up gradually to be above its potential rate over the forecast period” from last month’s minutes and replace it with “Recent data suggested that the Australian economy had continued to grow moderately at the beginning of 2017.” Duhn duhn duhn.

For now, the RBA believes that developments in the labour and housing markets need “careful monitoring over the coming months.” This, together with threats to “consider further measures if needed,” communicated that the RBA might step up its lending restrictions so that it could loosen its monetary policy to boost consumer spending.

Mixed risk sentiment – Risk sentiment was a mixed bag of beans during the Asian session, as traders took cues from their U.S. counterparts but also worried over geopolitical concerns and France’s upcoming Presidential elections.

U.S. VP Mike Pence is in Japan today where he’s expected to have a huddle with Prime Minister Shinzo Abe and Finance Minister (and Deputy Prime Minister) Taro Aso. Pence is expected to talk North Korea with Abe, while Aso has shared that he would discuss “a broad framework on bilateral economic cooperation” with Pence.

Traders worry that Pence’s huddle with Abe would lead to escalated tensions with North Korea, while Japanese markets are concerned that Pence will push Trump’s weak-dollar rhetoric and use it to put pressure on Japan’s trade deals with the U.S.

Nikkei, which found relief from a stronger dollar, rose by 0.33% while Australia’s A SX 200 dropped by 1.17%. Hang Seng and the Shanghai index, both pressured by the release of higher average home prices in China, dipped by 0.11% and 0.92% respectively.

Market Movers:

AUD – The Aussie dropped like a rock against its major counterparts as soon as the RBA’s latest meeting minutes hinted that central bank members are more concerned over the economy than their initial statement suggested.

AUD/USD fell 35 pips (-0.46%) to .7556, AUD/JPY lost 37 pips (-0.45%) to 82.30 after hitting a session high of 82.95, EUR/AUD jumped by 73 pips (+0.52%) to 1.4091, and GBP/AUD popped up by 76 pips (+0.46%) to 1.6627. Heck, even AUD/NZD plunged by 55 pips (-0.51%) to 1.0774!

Watch Out For:

  • European markets set to go back from the holidays. Brace yourselves for increased volatility!