The Australian Dollar had a fairly good day on Tuesday, not all of which was solely down to a recovery in US equity markets. AUD/USD opened in Sydney around 0.7660 but this proved to be within 10 pips of its subsequent low reached in the first couple of hours of trading. A glimmer of hope for the rate bulls in the RBA Statement (see below) helped begin a short squeeze which took the pair all the way up to a high in the London morning of 0.7705 but it couldn’t sustain this lofty level even as US stock index futures moved higher into the opening of the cash market. With the DJIA at one stage more than 300 points higher, AUD/USD still slipped back to the 0.7685 area.
To no-one’s surprise whatsoever, the RBA yesterday left official rates unchanged at 1.5%. It was the 18th consecutive board meeting where the RBA has kept rates on hold and equals the previous longest stint without rates changing since the RBA became independent from Federal Treasury, set between January 1995 and July 1996. Indeed, the Cash Rate has been steady for the entirety of governor Philip Lowe’s term in office, having been cut from 1.75% to 1.5% in September 2016 at the final meeting chaired by his predecessor, Glenn Stevens. The key passage for markets in the RBA Statement was, “Notwithstanding the improving labour market, wages growth remains low. This is likely to continue for a while yet, although the stronger economy should see some lift in wages growth over time. Consistent with this, the rate of wages growth appears to have troughed and there are reports that some employers are finding it more difficult to hire workers with the necessary skills.”
Just as last month we saw some analysts clutching at straws in the RBA Statement, so too this throwaway anecdotal line about hiring difficulties might offer some encouragement to those still looking for a rate hike this year. The rest of the Statement, however, did little to encourage such hopes and it finished by noting that, “Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.” The February retail sales data released tomorrow will now be watched closely to see whether the continued rise in employment has led to any increase in consumer spending. The Aussie Dollar opens in Asia this morning at USD0.7685, with AUD/NZD at 1.0590 and GBP/AUD1.83290.