RBA minutes highlight uncertainty over health of labour market - MUFG

Lee Hardman, Currency Analyst at MUFG, suggests that the Australian dollar is continuing to benefit from the ongoing search for yield even after the RBA’s decision earlier this month to lower interest rates failed to undermine its carry appeal.

Key Quotes

“The accompanying policy minutes were released overnight highlighting that the RBA has become more uncertain about their outlook for inflation, growth, and unemployment. In particular, “there was considerable uncertainty about momentum in the domestic labour market and the extent to which domestic inflationary pressures would rise over the next few years”. It casts doubt on whether the RBA’s decision to lower rates this month will prove sufficient to return inflation back towards target in the forecast period.

As a result, the market is likely to focus increasingly on the health of the Australian labour market going forward to assess the likelihood of further rate cuts which would take some of the shine off the Aussie. Absent a material weakening of labour market conditions, the RBA is not under immediate pressure to deliver further rate cuts this year offering support for the Aussie in the near-term alongside current favourable conditions for carry trades.”