Australian dollar little moved despite rate talk

The Australian dollar was little changed today despite the RBA declaring it continues to have a bias to lower interest rates over time.

The Australian dollar was little changed today despite the RBA declaring it continues to have a bias to lower interest rates over time.

In the minutes of its May 5 policy meeting, when it cut its cash rate target to a record low 2 per cent, the bank noted that it hadn’t provided markets with forward-looking policy guidance at the time of the cut. But it added that this wouldn’t limit its ability to adjust policy again at future meetings.

“Members agreed that ... the statement communicating the decision would not contain any guidance on the future path of monetary policy,” the minutes said.

“Members did not see this as limiting the board’s scope for action that might be appropriate at future meetings,” it added.

The comments resolved uncertainty in the markets about the rates outlook. Some economists had concluded earlier that the RBA was done lowering rates.

At 5pm (AEST), the Australian dollar was trading at US79.97c, compared with US80.12c at the same time yesterday.

“We expect the RBA to stay on hold, though as today’s communications make clear, if the real economy underperforms, housing market exuberance will not hold back the board from cutting again,” said Ben Jarman, economist at JPMorgan.

The RBA also reinforced its message that the Australian dollar needed to fall, and indeed, it would be necessary if the economy was to grow faster.

“Further depreciation of the exchange rate seemed to be both likely and necessary, particularly given the significant declines in key commodity prices, and that such an outcome would help to achieve more balanced growth in the economy and assist with the transition to a lower terms of trade,” the minutes said.

Earlier, data showed some improvement in confidence since interest rates were cut at the start of May.

Consumer confidence jumped 3.6 per cent last week, the highest level since early November 2014, according to ANZ-Roy Morgan.

Confidence is up a cumulative 5.4 per cent over the last fortnight, suggesting a more positive reaction to the budget and the May rate cut, the survey said.

High profile budget packages aimed at the household and “micro” business sectors were likely key reasons for the lift in confidence.

“The initial positive reaction of Australians to last week’s budget is great news for the economic outlook,” said ANZ chief economist Warren Hogan.