For the Australian Dollar the 'Mood Has Surely Improved'

The RBA cut the cash rate as we expected this week.

But the tone of its statement could scarcely have been more positive, given that it had to explain a decision to loosen policy.

In April for example (when rates were held steady), the RBA said “domestic demand growth (is) quite weak” whereas in May, “the available information suggests improved trends in household demand over the past six months”.

The decision to cut was summed up as being “to reinforce recent encouraging trends” in household demand, with the opportunity provided by a benign inflation outlook.

Little wonder there was a degree of confusion and waves of volatility in FX markets. While most expected the cut to 2%, there was great uncertainty on the guidance - if any.

The RBA Board’s decision to not include even a “soft” easing bias in the statement was the catalyst for an AUD/ USD rally that totals 1.7% at time of writing.

The AUD mood has surely improved.

The hopeful tone of the RBA statement should be expanded upon in Friday’s SoMP.

Tuesday’s budget looks to be less damaging to consumer confidence than last year’s.

Today’s April jobs data added weight to the hope that the unemployment rate is close to a peak.

And commodity prices, while volatile, are mostly tilting higher, including 2 month highs on iron ore.

But AUD/USD is likely to find the 0.80-0.81 area remains difficult to maintain, especially as Q1 wages data should renew talk of eventual RBA easing.