BNY Mellon with the note, catching on with my own views:
The Reserve Bank of Australia (RBA) decision this week suggests the central bank remains in a holding pattern. For the bulls still clutching at a few straws, the willingness to hold off making a decision on specific bond purchases suggests that that there is some scope for variation in policy. The soft CPI print for Q1 may have put paid to any hopes of a greater advance, but as long as Australia’s domestic recovery and normality is intact, coupled with ongoing fiscal support, there is scope for the RBA to shift its language away from the consistent ‘2024 at the earliest’ guidance on increases in the cash rate.WhiletheRBAisrightlyfocusingonthedomesticsectorandwaitingforfullemploymentandassociatedwagegainstomaterialize,the central bank and markets, via the AUD, are perhaps not reacting enough to the current surge in commodity prices globally. The RBA statement from yesterday mentioned commodity prices only once and Monday’s release of the central bank’s own commodity price index showed a new record high for April. Year-to-date, the index is up 11.6% in AUD terms and up 14.0% in USD terms. The benefits for Australia’s terms of trade are obvious but this has not registered at all in the AUD, which is still flat year-to-date (see chart below).
Sometimes AUD is more associated with the emerging market growth cycle rather than what is happening in G10. If so, then the consequent improvement in balance of payments via the trade channel, on top of what is already a structural current account surplus, should be an even bigger positive driver for the AUD – most emerging market currencies would behave in this way as well. The fact that these positive balance of payments changes are merely a reason to avoid excessive downside in the currency, rather than a source of strength, underscores the importance the market is placing on the level and trajectory of real rates – as determined by central banks. On an absolute basis, the RBA is holding back and on a relative basis, the specter of the Fed allowing a steepening in the US curve is never far away, which would not help the AUD.
