In their previous monetary policy statement last June, the RBA decided to keep rates on hold at 4.75% despite the surge in commodity prices. According to RBA head honcho Glenn Stevens, it wasn’t the right time for the central bank to tighten monetary policy since there were plenty of risks to the Australian economy.
Among these economic risks were the slowdown in production caused by the earthquake in Japan and the floods and cyclones in Australia. He even pointed out that the latter put quite a huge dent on their GDP, as the report showed a 1.2% contraction for the first quarter of the year.
Aside from that, Governor Stevens also noted that private investment is up but that household spending and borrowing remain cautious. Since the Land Down Under has yet to show signs of stronger growth, RBA officials vowed to keep a close eye on economic data to determine their future monetary policy decisions.
Since then, Australia has released a bunch of economic reports which weren’t exactly on the up and up. For one thing, their latest employment data revealed that their jobs market could be on shaky grounds. The May employment change report printed a mere 7,800 increase in hiring, much less than the expected 25,600 rise in employment. On top of that, the April figure was revised downwards from -22,100 reading to show a 29,400 drop in hiring.
You see, a downturn in employment is typically negative for an economy because it forces individuals to cut back on their purchases. And, as we saw through the freshly released retail sales report, consumer spending made a 0.6% dive in May. Building approvals also took a huge hit as it plummeted by 7.9% in the same month.
But wait, there’s more! It seems that consumers and businessmen aren’t expecting brighter prospects for the Australian economy either. The NAB business confidence index dipped from 7 to 6 in May while the Westpac consumer sentiment index printed a -2.6% reading for June.
Because of these not-so-sexy figures, market junkies aren’t keeping their hopes up that RBA Governor Glenn Stevens would holler a rate hike.
But don’t worry! In the minutes of the RBA meeting on June 7, central bankers from the Land Down Under say that another rate hike is “necessary at some point.” I wouldn’t hold my breath for that if I were you though. Reading further into the minutes, I found out that the RBA is worried about Europe’s debt problems so they would probably wait for further developments in the Greek sovereign debt crisis before tightening monetary policy.
What does this mean for the Aussie?
If analysts are right about the RBA keeping rates on hold at 4.75% and if it gives a hint on when it would start tightening, AUD/USD could rally past its most recent high just below the 1.0800. Heck, it could even hustle all the way to resistance at 1.0900!
Talks about heightened inflationary pressures would probably have this effect on the pair. On the contrary, if the central bank focuses more on the weaknesses of the Australian economy, AUD/USD could retreat to the 1.0500 support.
What if we hear a pleasant surprise from the RBA and they decide to hike rates tomorrow? Then I don’t imagine it would be that hard for AUD/USD to rally to 1.1000 and beyond! The odds of that happening are far from likely but we never really know for sure, right?
This is just my two cents though. What about you? How do you think the RBA statement will affect AUD/USD? Vote in our poll below!