Did the Australian dollar market overreact to the 3.5% comment in the RBA minutes?

CBA says yes, it did ...

• We continue to believe that the sharp AUD/USD upleg following the release of the RBA minutes is an over-reaction to the RBA's updated estimate of the 'neutral nominal interest rate' of 3.5%.
• The updated estimate lifted AUD because market participants seem to have interpreted the 3.5% neutral nominal interest rate estimate as indicating the RBA is behind the curve and may need to raise rates soon.
• The central bank takes the neutral interest rate into its long-run considerations, but adjusts short-term policy according to evolving economic conditions.
• There are no immediate implications for the RBA's cash rate, and we continue to believe the RBA will only lift interest rates in Q4 2018.
• Given the market reaction, the RBA may be wondering if they should have released their neutral interest rate estimate in a Research Discussion Paper rather than the closely watched Minutes.

On this:

• market participants seem to have interpreted the 3.5% neutral nominal interest rate estimate as indicating the RBA is behind the curve and may need to raise rates soon.

Nah. I haven't heard from anyone who drew the implication that rates will need to rise soon.

More from the note on overnight developments:

• AUD/USD held on to most of yesterday's post-RBA JuIy meeting minutes gains and continues to trade above 0.7900. Firmer iron ore prices and a lower USD supported AUD/USD overnight.