RBA talking down AUD, subdued inflation outlook - AmpGFX

Greg Gibbs, Analyst at Amplifying Global FX Capital, points out that the RBA discussed inflation and commented specifically on market services CPI and the influence of low labour costs. 

Key Quotes

“The market services ex-vol items is the lowest underlying measure at the moment at 0.8%y/y in Q2, up from 0.7%y/y in Q1.”

“They mentioned a number of factors that tended to downplay the recent rise in inflation, pointing to tobacco excise and utility price rises that could be considered temporary.  And low rent trends in major cities.”

“They forced the exchange rate into the discussion on their inflation forecasts saying that “the forecasts were conditioned on the assumption of no change in the Australian dollar exchange rate during the forecast period, which extends to the end of 2019, and that this assumption was one source of uncertainty.”

“This is just obvious and does not need to be said, but by saying it, raises the exchange rate as a significant policy issue.  They planted it there to continue to discourage the market from pushing up the AUD.”

“The sub-target outlook for inflation suggests no rush to raise rates even if the RBA is surprised by strength in the economy.”

“The RBA is trying quite hard by its standards to discourage further gains in the exchange rate, but there is no sign they would consider intervention any time soon, and it is still quite a ways from considering a rate cut to offset further currency gains.  At best it seems a higher exchange rate might delay hikes, but these are considered unlikely over the year ahead anyway.”

“Their flat outlook for rates probably prevents a big rise in the AUD/USD.”

“The RBA currency statements are little different than the RBNZ and should have limited bearing on the AUD/NZD cross.”