Morgan Stanley's wrap up of the speech from Reserve Bank of Australia Governor Lowe yesterday
There was no mystery around his comments, which despite being obtuse were nevertheless strongly pointing the way to more rate cuts. Markets assessed the probability of a cut in less than 2 weeks (July 2 is the next meeting) as higher (>70%).
Anyway, MS (in brief, bolding mine):
- Lowe concluded that the Australian economy can sustain a higher rate of employment growth and a lower unemployment rate than previously thought.
- Hence, with the neutral. rate of unemployment lower, the RBA noted that it can further accommodate growth conditions, which was the rationale behind its most recent rate cut.
- The RBA acknowledged that the latest cut would unlikely deliver a material shift in economic outcome nor bring inflation materially higher back towards its medium target of 2-3%. As such, the Governor hinted "the possibility of lower interest rates remains on the table'', consistent with what was expressed in the RBA minutes.
- Front-end Australian yields fell further on the back of these comments and held back the AUDUSD advance which occurred prior to the speech.
I am puzzled why Lowe is beating around the bush in his comments. He is just prolongating his wrongness. better to be clear and succinct in central bank communications (and to be fair this is not only applicable to Lowe)
AUD was held back at the time following the speech but US moves overnight sent AUDUSD higher again:
