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AUD/USD plunges on RBA minutes

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AUD/USD plunges on RBA minutes

The Australian dollar plunged to two-week lows against its US counterpart Tuesday after the minutes of the latest Reserve Bank of Australia meeting revealed a negative outlook on the economy.

The minutes revealed that, despite stronger than forecast jobs data, policymakers were still concerned about spare capacity in the labour market, and that overall growth for the remainder of the year would likely be below trend. This suggests policymakers plan to hold interest rates at record lows for an extended period to account for a sluggish recovery.

“Labour market conditions had shown some signs of improvement for a number of months, following the pick-up in economic activity from late 2013,” read the minutes of the May 6 monetary policy meeting. “Forward-looking indicators had also improved, but remained at low levels and were consistent with relatively moderate employment growth in coming months.”

Australian job creation, having been subdued in 2013, rebounded sharply in the early part of the year. Full-time employment in February rose at the sharpest rate in more than two decades. Job creation remained strong in March with an overall gain of 22,000 payrolls, as the unemployment rate fell from 6.1 percent to 5.8 percent. Australian employers added 12,400 payrolls in April, official data showed.

The Australian government expects unemployment to rise to 6.25 percent and stay there until mid-2016, partly a reflection of far-reaching budget cuts, which were announced by Treasurer Joe Hockey last week.

The RBA said growth was likely to grow above-trend in 2015-16, thanks to a rebound in both non-mining business investment and liquefied natural gas exports.

In economic data, the Conference Board’s Leading Indicator for Australia, a forward-looking indicator of the overall economy, declined in March from 0.2 percent to 0.0 percent.

Meanwhile, sentiment toward the greenback remained shaky as investors eye the minutes of the Federal Reserve’s April 29-30 policy meetings on Wednesday. Investors will use the minutes to piece together an outlook on monetary policy. The central bank has been tight lipped about monetary policy after Chair Janet Yellen announced in March the Fed could raise rates six months after the end of quantitative easing. A shaky recovery, combined with a lack of direction from the Fed, has fueled speculation the US central bank will keep interest rates at record lows well into next year.

The AUDUSD declined 0.72 percent to 0.9261, the pair’s lowest since May 5. The pair rebounded from an intraday low of 0.9248. Initial support is likely found at 0.9254 and resistance at 0.9354.

The AUDNZD declined 0.14 percent to 1.0797 after hitting an intraday low of 1.0777. The pair is likely to face resistance at 1.0835. Initial support is likely found at 1.0784.

The Melbourne Institute will provide the Westpac consumer confidence index Wednesday, a key indicator of Australian consumer sentiment. The Melbourne Institute will also report on consumer inflation expectations Thursday. The RBA said in its minutes today April would see a “sharp, temporary rise” in inflation in response to the latest tax hike.

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