Comments from Bill Evans, head of ecnomics at Westpac on the Reserve Bank of Australia Minutes of the April meeting released in Australia today.

On the AUD:

  • The ongoing plea for a lower AUD is emphasised in these minutes: "further depreciation of the Australian dollar was likely given the recent declines in key commodity prices".
  • At the time of the April meeting the AUD was trading around USD0.76 and today we see it in the 0.77-0.78 range.
  • This should be a clear signal that jawboning the AUD is unsuccessful if interest rates are not adjusted accordingly.
  • It is clear in these minutes and in the Governor's speech today that a lower AUD is necessary to achieve the adjustment in the economy that will be required to provide some buffer to the huge fall in Australia's terms of trade and the sharp decline in mining investment.

More broadly, Evans concludes:

  • From our perspective the key signal from these minutes is an implication that the Bank is preparing to lower its growth forecast in the May Statement on Monetary Policy citing the weaker outlook for non-mining investment and the impact of the recent fall in commodity prices on both mining investment and mining exports.
  • In addition the language around housing market risks appears to be more confident while prospects for the consumer appear to be consistent with earlier forecasts.
  • Arguably the major risk to our rate view is whether the recent strong employment report has motivated the Bank to significantly reassess its recent forecasts for the labour market. This seems unlikely firstly because that would be giving too much weight to one report and secondly it would be inconsistent with the Bank's approach to link prospects for the labour market with the growth outlook.
  • We continue to remain confident with our forecast that the Bank will cut rates by 25bps in May

Earlier comments on the Minutes from:

  • Citi
  • JP Morgan