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Talking Points
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AUD/USD gains after status-quo RBA monetary policy announcement
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Baseline lending rate unchanged at 2 percent, forward guidance static
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Aussie rose alongside bond yields, hinting at fading rate cut outlook
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The Australian Dollar rallied after the Reserve Bank of Australia held its benchmark lending rate at 2 percent, as widely expected. However, overnight index swaps priced in at least one cut over the next 12 months leading up to the announcement. This puts the forward guidance issued from the central bank in the spotlight as the markets looked for hints on the timing of futureeasing.
On the whole, the text of the policy statement was broadly unchanged from the one released in March. The RBA reiterated that low inflation would provide the scope for easier policy if that proves appropriate. They maintained that prices will likely remain low over the next year or two. Officials added that the Australian Dollar’s recent appreciation could complicate the adjustment under way in the economy as it continues to rebalance following the mining investment boom.
As the announcement crossed the wires, Australian front-end government bond yields rallied more than 1 percent. This suggests that today’s announcement effectively delays realization of the markets’ modestly dovish long-term view, perhaps explaining Aussie strength despite the status-quo outcome.
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