Daily Commentary BY THE CURVE TEAM –

RBA Stance Unchanged as GDP Partials Released

5th of August, 2020

There were no surprises in the RBA’s policy stance yesterday as retail sales and trade balance data were released.

The RBA yesterday reiterated its policy of the cash rate at 0.25% and a target for the 3-year Australian government bond yield of 0.25%. If there were any doubts about the RBA’s commitment to the 3-year yield target these were quelled yesterday as the RBA announced they would purchase bonds after the yield had drifted higher than 0.25% for the last few weeks.

The outlook for the economy was largely unchanged. An ‘uneven and bumpy’ recovery is expected, as is a large fall in GDP this year of around 6% followed by a rebound of 5% growth next year. This would still leave unemployment at 7% over the next couple of years which is indicative of the long term damage Covid-19 will do to the economy. The role of government support and initiatives alongside RBA policies was once again advocated in the recovery process.

Retail sales finished off the June quarter with another increase. Sales were up 2.7% in June, which left Q2 sales down 2.3%. The Q2 data would have been lower if not for a 1.2% lift in prices across spending categories.

Household goods dominated the increase, up 14.6% for the quarter, while eating out and clothes expenditure led the declining categories. The trend in retail sales will be hard to discern over the next few months as lockdowns are partially imposed across the country and as income support measures are tailed back.

A trend in Australia’s trade balance is clearer. Another surplus of $8.2 bn was posted for June, following a revised $7.3 bn surplus last month. Both exports and imports rose by $1.2 bn and $0.4 bn respectively, whereas the 2 months prior to June saw exports and imports decline in both months.

Leading the rise in the surplus was goods exports to China. China accounted for 48.8% of our total goods exports, a large rise from February where they accounted for 33%. This is in spite of recent political tensions.

Today housing finance approvals for June will be released. Last month approvals were down 11.6%.

Josh Stewart

Client Relationship Manager