Prior to RBA's minutes, AUDUSD was trading moderately higher at 1.0578.  The following is a summary of the important points noted:

  • RBA sees significant divergence in economic challenges, policy should be set for overall economic needs
  • RBA sees high likely hood GDP contracted in 1st quarter due to floods
  • RBA saw housing subdued, other data slightly more positive
  • RBA saw AUD's rise as influenced by foreign central banks buying
  • RBA saw core inflation as having troughed poised to rise
  • RBA saw higher rates likely at some point to ease inflation
  • RBA noted that forward-looking indicators point to continued solid labour demand in the period ahead

AUDUSD rose to 1.06 before falling to 1.055 after comments.  Australia seems to have joined the global phenomenon of Stagflation for the time being, except for China of course.  At first glance, it seems RBA is poised to increase rates at some point this year but price action has me to believe that we see 1.04 before 1.07.  Hawkish comments weren't enough to drive AUDUSD above 1.06.  Employment figures for AUD last week on May 11th came out worse than expected with 22k jobs lost.   With terrible employment figures and risk aversion to stay in place for the time being, AUDUSD should continue to sell off until we get next month's job figures.   Next month we can reassess and see if the job numbers for April were an aberration or more trouble ahead.