RBA meeting for July

The July meeting is key for the Reserve Bank of Australia (RBA) because it is the place where key decisions will be made about the QE programme and whether the current yield curve control will be maintained.

A Bloomberg piece flags up a warning here that RBA’s Governor Lowe has taken the unusual step of arranging a press conference one and a half hours after the RBA decision. Why? This allows the Governor time to see how bonds react to his tapering announcement and the fact that yield curve control will be coming to an end. It is what is called a ‘parachute meeting’. Designed to halt the terminal fall in bonds.

This is a great point by the Bloomberg rates analyst Stephen Spratt. He also goes on to point out that the groundwork has already been set in the latest RBA statement where the following line was removed from the policy decision, ‘prepared to undertake further bond purchases to assist with progress towards the goals of full employment and inflation’.

Mixed picture

Yet the RBA are also some way from their target of full employment and inflation in the 2-3% range. The desire for the RBA to reach 4% unemployment means that no rate hikes may be expected until 2024 still. However, it does look like the ground is being set now for some kind of exit from easy monetary policy. If the RBA see strength in the labour market that could also give them the confidence to bring forward rate hikes and could see them join the ranks of the BoC and the RBNZ. It will be worth looking at Australian 10-year bond yields heading into the July meeting.

It could also be worth buying AUD the night before the decision depending on sentiment at the time and manage risk as always.