RBA Minutes: GDP in Australia's major trading partners was expected to decline significantly over the first half of 2020

The RBA has published the minutes of its May Board meeting where the markets are looking for some more details on the views set out by the Bank in the Statement on Monetary Policy. 

RBA minutes, key notes

GDP in Australia's major trading partners was expected to decline significantly over the first half of 2020.

Australian economy had been severely affected by the imposition of containment measures.

Australian GDP was expected to contract by around 10 per cent over the first half of 2020.

Most of the contraction was expected to occur in the June quarter.

An economic contraction of such speed and magnitude would be unprecedented in the 60-year history of Australia's quarterly national accounts.

Preliminary data for march indicated that retail sales had experienced one of the largest monthly increases in the history of the series.

However, business liaison program suggested that retail sales had fallen in April.

Household consumption was expected to contract by around 15 per cent over the first half of 2020.

Contacts in the liaison program had reported that demand for both new and established housing had fallen.

Lower incomes and confidence, as well as lower expected population growth, were expected to affect demand for new housing for an extended period.

Liaison contacts had reported that they were taking steps to preserve cash flow, including deferring non-essential investment.

Non-mining business investment was expected to decline significantly; mining investment was likely to be relatively more resilient.

Weak labour market conditions were in turn expected to result in slower wages growth; wage freezes were likely to become more common.

Unemployment rate was expected to peak at around 10 per cent in the june quarter.

The covid-19 restrictions were expected to have a very large effect on prices in the june quarter.

Beyond 1h2020, outlook would depend on how long restrictions on economic activity were in place.

AUD/USD reaction

AUD/USD has been on the bid for the best part of the past few sessions since opening a little heavy on the back of geopolitical weekend news. However, the pair has rallied in tandem with US dollar weakness to score a fresh recovery high of 0.6551 reached in New York. Since the release of the minutes, AUD has held steady around the sessions mean at 0.6534.

Australia’s “Weekly Payroll Jobs and Wages

Meanwhile, at the same time of the minutes, Australia’s “Weekly Payroll Jobs and Wages” for the week ending May 2 is part of an ABS special series which provides an estimate of the impact of COVID-19 on jobs and wages:

• Australian Bureau of Statistics says over seven weeks from mid-march to early may, total payroll jobs fell by 7.3 per cent.
• Says latest data shows a further slowing in the fall in COVID-19 job losses between mid-April and early May.
• Says some industries were now showing a reduced impact in the most recent weeks.

Description of the minutes of the Reserve Bank of Australia

The minutes of the Reserve Bank of Australia meetings are published two weeks after the interest rate decision. The minutes give a full account of the policy discussion, including differences of view. They also record the votes of the individual members of the Committee. Generally speaking, if the RBA is hawkish about the inflationary outlook for the economy, then the markets see a higher possibility of a rate increase, and that is positive for the AUD.