• RBA Minutes weigh growth forecasts against sovereign debt risk.
• Local data broadly supportive of the local economy and AUD.
• Signalling from Europe leads to an agreement that may avoid a crisis.

Yesterday’s RBA minutes provided vital insight into the March board meeting and the ongoing pressure on interest rates. The minutes noted that local economic data took precedence over sovereign debt concerns in Europe and that local growth has ensured pressure has remained on the RBA to implement tighter macroeconomic policy. The well-balanced commentary ensured that there was a relatively muted response from the market however. In the next two weeks any press releases from the RBA will be key in signalling the pressure on them to hike in April however it is likely to be less hawkish than usual with the March minutes stating that they will raise rates “gradually towards more normal levels”. The coming week should also highlight the extent of the current long positions on the Aussie.

The local economic data was largely mixed, however after factoring the March RBA rate hike, the data was broadly supportive of a strengthening economy. Unemployment was marginally higher at 5.3% however the Consumer Inflation Expectations at 3.2% didn’t change from the previous month and the Westpac Consumer Confidence figure of 0.2% was up. Last week’s Home Loans figure of -7.9% was the first key piece of data to remove the momentum from a particularly strong round of releases.

Over the last week there has been further signalling from Europe that Greece will not default on its sovereign debt which has reduced the risk of a “double-dipped recession” for the global economy and improved appetite for riskier assets. Currently there is significant pressure on Greek sovereign debt bond yields and an agreement this week by the member nations aims to improve sentiment and reduce that cost of debt. If this is not successful, the member nations will provide direct loans or EU bonds to Greece to ensure they can service their debt payments. Currently the program is not in place and ideally it will not be required. In previous recessions there have sizeable provisions for sovereign debt defaults such as those made by the US to Mexico in the so-called “Tequila Crisis” in 1994.