Australia’s central bank hailed recent positive economic data while reiterating inflation would remain low, in minutes of its June meeting where interest rates were left at 1.75 percent and no policy guidance was provided.

The expansion “over the year had increased to be a bit above estimates of potential growth, reflecting a stronger expansion in non-mining activity,” the Reserve Bank of Australia said Tuesday in the minutes. “Nevertheless, inflation was expected to remain low for some time.”

Australia’s economy is showing a split picture: recession- level wage growth and record-low inflation on the one hand; and economic growth close to its 30-year average and unemployment below its 20-year mean on the other. The central bank, meanwhile, appears content to stand pat for now as the country heads toward a July 2 election and international events like Britain’s vote on leaving the European Union play out.

“The board judged that leaving the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and inflation returning to target over time,” the minutes said. The Australian dollar rose to 74.81 U.S. cents at 11:34 a.m. in Sydney from 74.65 cents before the minutes were released.

Eoin Treacy's view

The Australian economy is a clear outperformer when compared to other OECD countries and with the New South Wales economy reporting a substantial surplus today the domestic economy is benefitting from improved competitiveness following the 36% decline in the Australian Dollar from its peak. With low inflation it is unlikely the RBA is going to hike rates any time soon but the interest rate differential and recent stability of the currency represent attractive characteristics from the perspective of international investors. 

The Australian Dollar posted a failed break below 70¢ in January and found support above that level earlier this month. A sustained move below 70¢ would be required to question support building.   

The S&P/ASX 200 bounced from the region of the trend mean yesterday and a sustained move below it would be required to question medium-term scope for additional higher to lateral ranging. 

The relative weighting of the resources sector declined significantly over the last four years, with the result that the banking sector now occupies by far the largest weighting. However it is now underperforming while the S&P/ASX 300 Resources Index has staged an impressive rally year-to-date. The Resources Index has been consolidating mostly above the trend mean since April and a sustained move below it would be required to question recovery potential.

Meanwhile the New Zealand 50 FG Index is increasingly at risk of a reversion towards the mean.