RBA minutes were released overnight. It concerns the last meeting where RBA did not lower interest rates - in line with expectations. The document reveals that a cut in July is very unlikely, but August is a different story.
The Bank pointed to weak inflation as the most worrying factor. Current inflation is 1.3%, vs the official target of 2-3% The second issue is now the labour market. It looked strong in 2H of 2015 but now shows more and more evidence of losing steam. In fact the recent payrolls data would have been negative (monthly change) were it not for stronger the part-time jobs. External factors particularly monitored by the Bank are Brexit (unlikely to materialize in our view) and the Chinese economy (still a systemic threat to Australia).
What the minutes say is that a mix of low CPI, shaky labor market and AUD being too strong vs commodity prices is enough to secure another rate cut this year. We see 27-Jul as the key date - as this is where the 2Q inflation figure will be out. If it is weak then prepare for a rate cut in early August
AUD is the strongest todady from the G-10 fx, 0.3% vs. USD even though the minutes do not deliver a hawkish message.
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