Daily Commentary BY THE CURVE TEAM –

Important Week for Monetary Policy

17th of June, 2019

There will be a lot of moving parts to keep an eye on this week as the global back drop, and in particular monetary policy, is thrust back into focus.

Last week the focus was on the domestic data which provided as many questions as it did answers for the RBA. The business survey confirmed that the softening of business conditions has continued. However there was a jump in business confidence. Consumer confidence on the other hand softened. The employment data once again highlighted the conundrum facing the RBA in pursuing its mandate of full employment.

There are a few highlights on this weeks local data calendar. We will get some RBA activity with the release of the RBA’s June Board meeting minutes. What will be of more interest is Governor Lowe’s speech on Thursday at the CEDA luncheon in Adelaide. He will speak on ‘The Labour Market and Spare Capacity’ which will be sure to garner plenty of attention given the RBA’s decision to cut rates in June was based on a reassessment of what constitutes full employment.

Thursday will also see some more monetary policy action offshore. First the Bank of England will meet which will be of interest as they continue to point to the need for rate hikes. They will then be followed by the Fed in the US where the market is increasingly expecting them to cut the Fed Funds Rate.

What the Fed does and says will become increasingly important for the RBA and the outlook for the Australian economy. With interest rates getting lower and lower, the currency is becoming an increasingly important transmission mechanism for monetary policy.

A lower Australia dollar will go a long way to supporting the Australian economy and boost growth. However if the Federal Reserve cuts the Feds Fund Rate, or signals it is a growing possibility, it could put pressure on the USD. This in turn could put upward pressure on the AUD, something the RBA doesn’t want.

So it is an important week for monetary policy with plenty of implications for the broader outlook.

David Flanagan

Director - Interest Rate Markets