RBA minutes – All bark and no bite

Released minutes of its July 7 meeting by Reserve Bank of Australia (RBA) indicate hesitations from Reserve Bank of Australia (RBA) to provide any sharp relief while it tries to bark the Aussie down.

RBA sees below trend growth in Australia but stable employment. RBA expressed concern over Greece and Chinese stock market crash but sense of urgency was missing, which might translate into wait and watch from RBA as Greek and Chinese situation stabilizes.

Key highlights -

• RBA clearly expressed concern on Chinese equity market volatility but notes that impact on the real economy is limited. Moreover RBA was somewhat upbeat on Chinese property market.
  
  
• RBA, once again barked at the exchange rate, saying that it has depreciated 9% against dollar this year till the meeting, however decline is modest against other currencies. According to RBA, Australian dollar had far offered less assistance than would normally be expected in achieving balanced growth in the economy, so further depreciation seemed both likely and necessary.
  
  
• As per RBA, leaving rates unchanged was appropriate and the minutes offered no hint of further rate cut this year. Since falling currency is providing some stimulus and RBA staying mute, expectations for further rate cut is getting lower.

As of now, Swaps market is predicting 23% chance of a rate cut in next meeting.

Aussie is likely to fall against dollar further due to diverging economic fundamentals. Aussie is currently trading at 0.737, key resistance lies around 0.75 level.