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The RBA has been under pressure to cut interest rates, as the Australian economy has been hurt by weak global demand, in particular the slowdown which has gripped China. The minutes of the May meeting were dovish, raising the likelihood of a rate cut at the June policy meeting. The minutes discussed the “uncertainties” regarding the bank’s inflation target of 2.0%. As well, policymakers dropped a reference to “not a strong case” for a rate move in the near future, which appears to be a bias in favor of easing. RBA Governor Lowe spoke on Tuesday and the message was even clearer. Lowe stated that a “decrease in the cash rate would likely be appropriate.” The markets responded by pricing in a June rate cut at 91%, so the Aussie could face further headwinds as investors look for more attractive alternatives.
The Aussie started the week with gains, receiving an unexpected boost from the general election results. Prime Minister Scott Morrison’s conservatives had been widely expected to lose to the center-left Liberals. Morrison had trailed badly in the polls throughout the campaign, but came from behind in stunning fashion to pull off the victory. The markets reacted favorably to the election results, and AUD/USD climbed as high as 1.0% on Monday.
