Daily Commentary BY THE CURVE TEAM –

Local Data and the Fed Provide Useful Updates

Data out in Australia continued to disappoint as Fed minutes give insights into prospects of Yield Curve Control

Overall, dwelling approvals were down 16.4% against a market expectation of 7.8% in the latest data out yesterday. Unit approvals were the driver of this fall, down 34.9% whereas housing approvals were down 4.4%. The most recent Purchasing Construction Index data suggests further drops in approvals are to come over the months ahead.

The data is significant as the performance of the construction sector has broader implications for the economy. It is a key employer and spurs further economic activity from the consumption associated with buying or renting property.

In the US, The Fed released its minutes for their June meeting overnight. A key discussion point from the minutes was the efficacy of Yield Curve Control in the US. Australia was referenced as an example to see its applicability.

The Fed’s discussion essentially ruled out Yield Curve Control in the US for now, citing blurring the Fed’s independence from government, the challenge of determining the correct price and a preference for continued forward guidance as reasons it is not relevant. Given Yield Curve Control in Australia has never occurred before the covid-19 pandemic, all these concerns will be closely monitored by the RBA to determine whether to continue the policy domestically.

Local data today see the latest trade balance data released. The surplus expected to grow from $8.8 billion in April to $9 billion in May. The balance will be less closely watched than the actual values of imports and exports, which are expected to fall further following drops for April. The values of exports and imports will give an indication of actual levels of economic activity and the extent to which covid-19 has disrupted trade activity.

Matthew Dunshea

Client Relationship Manager