The Australian Dollar had a pretty quiet start to a holiday-thinned week but a brutal day for US equity markets - with the DJIA and S&P 500 indices both down 2¾ percent and a 2-point jump in the VIX index - saw AUD/USD down around a quarter of a cent to USD0.7655. Overnight in Asia and this morning in Europe, the Aussie has recovered quite smartly and at one point briefly regained a US 77 cents ‘big figure’ before then slipping around a quarter of a cent from its high to 0.7685.
This being the first Tuesday of the month, the Reserve Bank of Australia this morning held a Board meeting to discuss monetary policy. To no-one’s surprise whatsoever, it 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 percent 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 labor 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 Australian Dollar opens in North America this morning at USD0.7685, with AUD/NZD at 1.0600 and AUD/CAD0.9895.