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Dovish RBA Minutes

Published October 16, 2019

By Perry Mitchell

The Aussie came under pressure yesterday in reaction to a more dovish tilt from the latest RBA Monetary Policy Meeting Minutes for October. The Central bank displayed a readiness to ease policy further and also highlighted downside risks to the economy.

A subtle although significant change to the end of the minutes is worth noting – ‘The Board would continue to monitor developments, including in the labour market, and was prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.’

In comparison to the September minutes finishing with the following ‘Members would assess developments in both the international and domestic economies, including labour market conditions, and would ease monetary policy further if needed to support sustainable growth in the economy and the achievement of the inflation target over time.’

The RBA admitted on Tuesday that record low-interest rates might not be working as well as hoped. This against the backdrop of doubt over any breakthrough from the latest round of trade talks between the US and China, coupled with yesterday’s mixed Chinese inflation figures exerted some additional pressure on the China-proxy Aussie Dollar and triggered the intraday pullback, as of writing this morning the Aussie pair is currently trading at immediate support around 0.6740/50.

Unsurprisingly, the latest report from the International Monetary Fund (IMF) paints a gloomy picture for the global economy. The global crisis lender cut its outlook on global growth to 3.0% for 2019, marking the weakest global growth rate since the financial crisis. Trade tensions, manufacturing, and geopolitical factors attributed to much of the risk in the global economy. Trade growth is expected to slow to 1.1% this year, down from 3.6% in 2018. The IMF warned low inflation could become entrenched in advanced economies, “constraining” interest rate policy and “limiting its effectiveness”. Also calling on governments to use budget spending and structural reforms to lift economic growth. “Monetary policy cannot be the only game in town. It should be coupled with fiscal support where fiscal space is available, and policy is not already too expansionary,” the IMF said.

Brexit talks took a positive twist overnight boosting the Pound, despite the worse than expected UK employment data. The recent push higher in the Pound came after headlines that negotiators are closing in on a draft Brexit deal. Consequently, expectations have risen that there could be a breakthrough reached ahead of the EU-UK summit later this week, despite the fact Prime Minister Boris Johnstone still faces the obstacle of getting a deal through Parliament. The report also stated that any deal that can be agreed between the UK and EU will hinge on the Democratic Unionist Party (DUP) in Northern Ireland, given that their support will be crucial in raising the likelihood that a deal could be passed on parliament.