The Australian dollar has jumped half a cent following the release of the Reserve Bank of Australia’s May monetary policy meeting minutes, underpinned by the revelation that the board had to be “persuaded” to cut interest rates to a record low level of 1.75%.
Here’s the final two paragraphs from the RBA release, crucial in explaining the bounce in the Aussie dollar. Our emhpasis in bold.
In coming to their policy decision, members noted that developments over recent months had not led to a material change in the outlook for economic activity or the unemployment rate, but the outlook for inflation had been revised lower. At the same time, they took careful note of developments in the housing market, which indicated that supervisory measures were strengthening lending standards and that the potential risks of lowering interest rates therefore were less than they had been a year earlier.
Members discussed the merits of adjusting policy at this meeting or awaiting further information before acting. On balance, members were persuaded that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting.
Doesn’t sound like a board united in its thinking that a further reduction in interest rates was necessary, nor does it fit with the belief in markets that at least one – or maybe two or three – additional rate cuts would be forthcoming in the 12 months ahead.
The Australian dollar reaction reflects this element of surprise, as does the 5-minute chart below.
Currently the AUD/USD buys .7341, up 0.74% for the session.