RBA Minutes all you NEED to know!

RBA minutes cast doubt over RBA’s willingness to keep raising rates.

The Australian dollar experienced significant movement overnight, leading to a decline in the AUD/USD rate, nearing the 0.6800 level. The release of the minutes from the RBA's previous policy meeting on June 6th triggered the sell-off of the Australian dollar yesterday. Surprising market participants, the RBA implemented another 25bps hike, raising the policy rate to 4.10%. The updated guidance surprising the likelihood of further rate hikes to achieve the inflation target.

The recently released meeting minutes have raised doubts about the RBA's inclination to continue raising rates. The minutes revealed that the RBA deliberated on pausing rates at the last policy meeting but ultimately concluded that the arguments were "finely balanced" in favour of a rate increase.

The decision to raise rates this month, while finely balanced, will dampen expectations for future hikes unless inflation risks continue to rise. As a result, the Australian rate market reacted accordingly, anticipating fewer rate hikes, which weighed on the Australian dollar. The probability of another hike at the upcoming policy meeting on July 4th has dropped below 50% (11bps are currently priced in), although market participants still expect two more 25bps hikes by December (47bps of hikes priced in).

These developments setback my long AUD/NZD trade idea, which aimed to benefit from the narrowing policy divergence between the RBA and RBNZ after the RBNZ concluded its hiking cycle before the RBA. While AUD/NZD has fared better than AUD/USD and is still trading above support at the 1.1000 level, investor sentiment towards the Australian dollar has been dampened due to initial disappointment regarding the extent of fresh policy stimulus from China.

The PBoC announced an overnight reduction in rates, with both the one-year and five-year loan prime rates being cut by 10bps, matching last week's reduction in PBoC's policy rates. However, there were speculations that the loan prime rates, which serve as references for mortgages, could have been further reduced to provide additional support to the struggling housing market. These rate cuts have contributed to the renminbi reaching new lows against the US dollar this year, despite the broader correction of the US dollar lower.

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