AUD: Minutes Reflect Openness to More Tightening

AUD: Minutes keep pointing at openness to more tightening

The minutes of July’s Reserve Bank of Australia (RBA) minutes released overnight showed members see the policy rate as “clearly restrictive” at current levels and acknowledge the growth outlook has deteriorated. At the same time, considerable emphasis remains on the inflation backdrop and the explicit openness to more tightening if needed means that another hike remains possible should CPI figures surprise materially on the upside again. We currently expect one last 25bp hike in September.

AUD was very marginally impacted by the minutes, both because the narrative was largely unchanged from recent communication and because external factors are in the driver’s seat at the moment. China’s disappointing second-quarter growth figures are yet another confirmation that AUD has to discount its elevated exposure to Beijing for the time being. The big chunk of the re-rating of Chinese growth expectations has, however, already happened, and news on more stimulus from Beijing may open the door for some bullish opportunities for AUD.

Back to domestic factors, we’ll closely watch June’s jobs reports (out this Thursday), although the biggest risk event for AUD is on 26 July, when second-quarter CPI figures are released. AUD/USD may suffer from a USD rebound and lingering negative Chinese effect in the coming days, but we could see it consolidate around 0.6850/0.6900 in the next few weeks.