RBA Minutes: Target for three-year yields to be maintained until progress made towards full employment, inflation

The Reserve Bank of Australia released its June minutes and stated that the target for three-year yields to be maintained until progress made towards full employment, inflation.

Reserve Bank of Australia minutes

• The target for three-year yields to be maintained until progress made towards full employment, inflation.
• Members agreed that there was no need to adjust the package of measures in Australia in the current environment.
• The accommodative approach will be maintained for as long as necessary.
• Likely that fiscal and monetary support would be required for some time.
• Members agreed to continue to assess the evolving situation in Australia and did not rule out adjusting the current package if circumstances warranted.
• Have not purchased government bonds for some time, prepared to scale up purchases again, if necessary.
• Uncertainty about the future path of the economy as well as the health situation was continuing to affect the consumption and investment plans.
• Members agreed that negative interest rates in Australia remain extraordinarily unlikely.
• Agreed there is no case for intervention in the foreign exchange market, given its limited effectiveness when the exchange rate is broadly aligned with its fundamental determinants, as at present.
• Economic conditions have stabilised and the downturn has been less severe than earlier expected.
• Global economic outlook remained uncertain and would depend upon containment of the virus.
• The nature and speed of the economic recovery remained highly uncertain.
• The Australian economy was experiencing the biggest economic contraction since the 1930s.
• Members agreed that the bank's policy package was continuing to work broadly as expected
• The nature and speed of the economic recovery in Australia remained highly uncertain.
• Bank's policy package was working broadly as expected.
• Consumer spending in May and June had been stronger than expected.
•  Fiscal policy was playing a key role in supporting economic activity and the labour market in Australia.
•  Government assistance – particularly the job keeper and jobseeker programs – was playing an important role in supporting household incomes and consumption.
•  Non-essential investment spending was most at risk of a sharp pullback.

AUD/USD & AUD/JPY outlook

AUD was a little subdued on the release in the immediate drop of the headlines, although there was a bullish bias emerging as time went by.

AUD/USD inched higher AUD/USD to match the session highs again.

There is a slight air of caution considering that Australia is facing the worst period of its battle against the pandemic, with the state of Victoria in full lockdown but still seeing big daily jumps in cases.

• Victoria records 374 new cases of coronavirus and three more deaths

 Chinese equities dynamics may remain a key driver as do US stocks. 

Traders will have been looking to any currency-related comments in today's minutes in what was an otherwise uneventful meeting. However, no such offering for traders today on that front.

Meanwhile, the bulls are back in town, supported on the current account surplus theme that has been supporting the bid within the COVID-19 recovery rally this year so far. 

Australia's minister for resources spoke with the Financial Times and confirmed that Australia has been shielded from an even worse pandemic downturn
record demand for resources from China. This is despite the recent concerns over trade wars and a potential falling out between the two major trade partners. 

However, as analysts at TD Securities pointed out, "market expectations of further copper strength have certainly begun tapering in recent weeks, with the pace of demand growth slowing, support from the supply side easing and CTA buying reaching its conclusion."

As the expectations normalize, and sentiment in the market remains on edge with persistent US-China disputes and COVID infections still growing around the world, the red metal could come under selling pressure in the near term, especially as net spec positioning on both the COMEX and LME has recently shot to its highest levels since mid-2018. 

Australia exports of copper to China was US$1.15 Billion during 2019, according to the United Nations COMTRADE database on international trade.

Meanwhile, the US dollar has been on the backfoot as risk sentiment gathers pace over the optimism over a vaccine for COVID-19. 

The weakness in the DXY and strength on Wall Street has been supportive of risk flows benefitting AUD and also the markets risk barometer, AUD/JPY which offered a textbook trade set up earlier in the Asian session today as follows:

• AUD/JPY 15-min chart long entry strategy playing out

The description of the RBA minutes 

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.