• There was no change to the RBA’s guidance about a period of stability in rate settings continuing.
• The June Board minutes look a bit more dated than usual given they predate the strong QI GDP result and the May jobs data.  Growth in 2014 looks like it will be around trend rather than “below trend”, as current RBA commentary suggests.
• The much‑anticipated pick up in non‑mining business capex now looks more definitive, given the latest capex survey.
• The RBA do not appear to be concerned with the recent sudden fall in sentiment.  Sharp movements in consumer sentiment do not necessarily mean a commensurate impact on household spending.
• We continue to expect the RBA to start raising interest rates in November.  Market expectations are focused around late 2015.

The June RBA Board minutes are probably a bit more dated that usual because the Board meeting pre‑dated the better than expected QI GDP data. The Board minutes note that GDP growth in 2014 is “expected to be below trend…rising gradually thereafter”.  However the strong QI print means that the next few GDP data outcomes will need to be quite low, if growth in 2014 is to be below trend.  This looks unlikely given recent data prints.  Overall, the minutes are more dovish than you would expect given the recent encouraging data.  There is still a bias to accentuate the downside risks.

The RBA’s comments around the labour market also seem to be down‑playing the positives in the recent data.  The RBA expect “moderate growth” in employment over the near‑term.   The Board meeting also predates the May employment data which showed that the unemployment rate was steady for the third month in a row at 5.8%.  If sustained, this means that the unemployment rate has already peaked, at 6.0% in January, a sooner and lower peak than the RBA was anticipating.

The RBA’s commentary on the capex environment has also shifted marginally given the latest release of the capex survey. Previously, the RBA said that a pick up in non‑mining investment was expected and in “prospect”.  The June minutes seem to be more definitive in the expected rise in non‑mining capex, noting that the latest capex survey was pointing to a “modest increase” in non‑mining investment.

The RBA noted that the 2014‑15 Federal Budget implied a narrowing in the deficit over the next two years that was slightly more than had been estimated in the 2013‑14 MYEFO, but in line with their own expectations.  Consumer sentiment has taken a hit over recent months, because of negativity around the Federal Budget and the potential impact on household finances.  The risk is that the decline in sentiment translates through to an actual impact on consumer spending.   The RBA commentary in the June minutes noted that sharp movements in consumer sentiment (such as the recent fall) do not necessarily translate into commensurate shifts in consumer spending.  A lessening in consumer job security fears is likely to also be lessening the impact of low sentiment on actual household spending activity.

The RBA’s comments on the Australian dollar are in line with the post‑meeting Statement, noting that “the exchange rate remained high by historical standards” given the decline in commodity prices recently.

We continue to expect the RBA to begin “normalising” monetary policy late in 2014, with a rate rise in November.  Markets are pricing in an interest rate hike in late 2015.  The risk is that a sustained stronger AUD could impact on the inflation trajectory and the growth transition and therefore the timing of any ultimate interest rate move.

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