Daily Commentary BY THE CURVE TEAM –

QE Extension In Doubt

1st of June, 2021

An omitted element from the RBA’s statement has cast doubts over whether QE will be extended.

The last two statements have included a line saying the RBA are ‘prepared to undertake further bond purchases to assist with progress towards full employment’. This was omitted in yesterday’s statement, which may suggest the RBA is less keen on extending QE than in previous months.

Otherwise, the RBA maintained the current policy settings, confirmed they thought it unlikely to increase the cash rate before 2024 and said the next meeting is where they would make an announcement on QE and yield curve control. Governor Lowe will speak during the middle of the month, which will likely act as the final prelude to the RBA’s decision.

In the meantime, the Victorian lockdown will likely act as the key factor that would change the RBA’s decision.

A raft of other data updates came through yesterday. Building approvals were down 8.6% for April following the end of HomeBuilder grants, which still leaves them 39.2% higher than last year.

Units, especially high-rise units, led the falls after a staggering rise in March. Private sector houses were actually up 4.6% over April from already very high levels. Nuance in deadlines and flow through to the data make it uncertain how drastic the drop off in approvals will be, but the data for April was not as drastic a fall as expected.

Coinciding with strong approvals was another gain in house prices, up 2.3% for May. This follows a rise of 1.8% in May, leaving them 9.4% higher than last year.

A raft of GDP partials were released as well. Namely, inventories were up 2.1% for the quarter, higher than the expected 0.2% rise.

Operating profit by contrast was down 0.3%, a lot lower than the 3.4% expected rise. The current account surplus came in very strong, at $18.3 billion, whereas Q4 was $14.5 billion.

Consumer confidence for the week to May 30 dipped down to 111.4 from 114.2. Victoria’s current lockdown likely contributed to the fall, but the figure remains robust.

Josh Stewart

Associate - Money Markets