AUD: Classic case of markets front-running central bank policy - ING

Talk of a 3.5% neutral rate in the July meeting minutes was enough for the RBA to catch a bit of the current hawkish market contagion as 2-year AGB yields moved back towards the 1.9% level last seen in mid-March, taking the AUD$ up with it, notes the analysis team at ING.

Key Quotes

“We doubt whether there was any explicit intention from the RBA to send a clear policy signal via the latest minutes, while any near-term hike remains contingent on a pickup in domestic price pressures. With inflation playing a key role in the RBA's policy reaction function, 2Q CPI data next week (26 July) will be critical for markets.”

“Any disinflationary signs – as witnessed in neighbours New Zealand this week – could trigger a dovish reassessment in markets. Ahead of this, there is now even greater focus on RBA Deputy Governor Debelle's speech on Friday – which is aptly called "Global Influences on Domestic Monetary Policy". It may well be time for the central bank to roll out its full jawboning toolkit given that the trade-weighted AUD$ is close to breaching a key multi-year resistance level.”