Aussie dollar dips on RBA governor comments on stable rates and stronger US data

All eyes were on the RBA this week with a board meeting on Tuesday and Governor Stevens speaking Thursday. The bank’s post meeting statement suggested the RBA continues to envisage a "period of stability in interest rates" with the bank still expecting growth to be a little below trend over the year ahead.

The comments on the exchange rate suggested the RBA is increasingly uncomfortable with the level of the $A. A lower $A will aid the transition to non-mining drivers of growth in the Australian economy.

More broadly, over the next few months as the strength in the US economy broadens and inflation continues to rise from very low levels, we expect the market to price in a more aggressive path for US tightening. This should strengthen the $US and drive the $A back down.

Stevens’ comments helped push the dollar lower. May retail sales fell a sharp 0.5 per cent in the month, after a downwardly revised 0.1 per cent fall in April, with confidence and warm weather likely weighing on spending.

Also, the trade data were particularly weak with the recent sharp fall in iron ore prices driving resource export revenue down in the month, widening the trade deficit to $A1.9 billion in May.

On the positive side, building approvals surprised on the high side with a strong 10 per cent rise, partly reversing weakness over the prior three months as high-rise approvals bounced.