The Australian dollar falls after RBA minutes confirm neutral stance
The Australian dollar has fallen after RBA members indicate rates could move in either direction.
The Australian dollar fell on Tuesday after the release of the RBA February minutes, which indicated concern over falling housing prices and China's growth, signalling rates could move in either direction.
RBA members noted that there were significant uncertainties around the forecasts, with scenarios where an increase in the cash rate would be appropriate at some point and other scenarios where a decrease in the cash rate would be appropriate, according to the minutes.
Members concerned over China growth and trade tensions
The minutes indicated that it was difficult to predict the effectiveness of recent policy measures in China, with trade tensions and signs of slowing domestic demand increasing the risks to the outlook for China.
The minutes also noted that trade tensions remained a material risk to the global growth outlook.
In line with central bankers across the globe, the RBA has entered 2019 with a newly dovish approach to interest rates.
IG market analyst Kyle Rodda said, ‘Markets have thus far stood to attention: although leading the RBA (in some sense) in factoring the need for looser monetary policy conditions, the change in rhetoric from the RBA this year has further manifested in market pricing.’
Over the past week, interest rate markets have shifted to pricing a rate cut as the most likely course for the RBA in 2019.
Australia's central bank sounds alarm on falling housing prices
RBA members showed concerns over the unpredictability of Australia’s housing market, with national home prices down 8% to some of the lowest levels seen since 2016.
Potential further losses in housing prices led the RBA to downgrade its forecasts for growth through 2021.
Members assessed the effect of the recent price falls on overall economic and indicated ‘if prices were to fall much further, consumption could be weaker than forecast, which would result in lower (economic) growth, higher unemployment and lower inflation than forecast’ RBA members said.
The Australian dollar falls on minutes release
On Tuesday morning before the announcement, the Aussie Dollar pulled back below the $0.7150 handle after rallying beyond that mark on the back of trade-war optimism.
IG market analyst Kyle Rodda said, the ASX 200 will be in focus after the RBA minutes release.
‘The ASX 200 leapt from the gates yesterday morning to break above 6100 resistance, the index once again failed to prove its bullish mettle, closing trade yesterday at 6089.’ Mr. Rodda said.
AUD/USD fell on the release as markets priced the next move by the RBA will be a cut.
'AUD/USD's recent move above $0.7150 was driven by speculators chasing trade-war headlines, coupled with a short bout of USD weakness.’ Mr. Rodda said.
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