G’day, forex mates! If you missed yesterday’s July RBA meeting minutes or you just want the more important stuff that wasn’t already mentioned in the July RBA statement, then here are the 4 highlights that you need to keep in mind.
1. GDP growth to moderate in Q2
The RBA warned that the available Q2 data are pointing to a likely moderation in Q2 GDP growth after Q1’s amazing numbers, which had the fastest quarter-on-quarter growth since Q1 2012 and the fastest year-on-year growth since Q3 2012. Regarding specific Q2 data, the RBA listed a smaller contribution from net exports and mixed signals for consumption.
The contribution from net exports is expected to soften because “Trade data suggested that iron ore export volumes had declined from very high levels in April and May, while coal export volumes had increased marginally.”
As for consumption, signals were deemed mixed because retail sales had increased only slightly in April and May, but may have picked up in June. However, there is “ongoing pressure to discount prices in response to increased competition in some retail markets.”
2. On the housing market
In my earlier write-up on the RBA’s July Statement, I noted that the RBA seemed worried about the housing market, and the RBA meeting minutes elaborated on that. To begin with, “indicators suggested that dwelling investment had continued to grow strongly, particularly for higher-density dwellings.”
However, “sales volumes had been lower than a year earlier” and “Housing credit growth had eased further, consistent with a relatively low level of turnover in the housing market.” Moreover, “growth in rents had declined over the past year to low levels and the vacancy rate had increased to around its long-term average.”
In simpler terms, supply continues to build up while demand is beginning to show signs of weakening, which creates an imbalance. The RBA wasn’t too worried, though, since “a number of measures were being implemented that could dampen foreign investors’ demand for new dwellings.” In addition, “Several state governments had increased or were preparing to increase taxes on foreign investors in housing, while the major banks had increased restrictions on housing loan approvals for applicants relying on foreign income.”
3. Ninja-like jawboning
The RBA didn’t try to directly talk down the Aussie dollar, but it did say that:
“In the domestic economy, the transition of economic activity to the non-resources sector was now well advanced and recent data suggested that growth had continued at a moderate pace in the June quarter. Low interest rates were continuing to support household spending and the lower exchange rate since 2013 had continued to assist the traded sector of the economy. Members noted that an appreciating exchange rate could complicate the necessary economic adjustments.”
In other words, a stronger Aussie would make this transition to the non-resources sector more painful than it needs to be, so a stronger Aussie is therefore undesirable.
4. RBA open to further moves
The RBA said that it would “make any adjustment to the stance of policy that may be appropriate” depending on further information, so the RBA is saying that it is open to further rate cuts. As to the specific information that may convince the RBA move, the RBA said that it’s keeping a close eye on “further information on inflationary pressures, the labour market and housing market activity,” so you better keep a close eye on them as well.
The Aussie’s Reaction
The Aussie was already feeling some pain before the release of the RBA minutes, likely because of the slide in iron ore prices and also probably because it was dragged down with the Kiwi when the RBNZ announced some proposed changes to housing loan restrictions. The Aussie was then pushed lower when the RBA meeting minutes came out, probably because of renewed rate cut expectations after the RBA signaled its openness to further moves.