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17 Jul 2015
Will RBA go more neutral now? - Scotiabank
FXStreet (Guatemala) - Analysts at Scotiabank explained that unlike most developed markets, Australian CPI is only released every quarter, making it a touch harder to have a sense of underlying price pressures but also rendering the release a much bigger policy focus that carries additional market risk.
Key Quotes:
"While Governor Stevens and the RBA clearly maintain some dovish bias, markets have generally interpreted the May interest rate cut to be the last of the easing cycle causing the AUD to strengthen in response to the announcement."
"Probably much to Stevens’ relief, AUD has since fallen back to six-year lows, reflecting weaker iron ore and energy prices, but also being dragged down by Grexit and Chinese equity market concerns."
"Rates markets are similarly pricing in a non-zero probability of a cut before year-end. But now that the Grexit/Shanghai Composite issues seem to have stabilized, Chinese growth is doing better than expected, and Aussie employment appears steady, the focus will be on whether the RBA erases the last of their easing bias and shifts towards more neutral territory, particularly given their ongoing concerns regarding elevated household debt."
"The missing piece of information now is the Q2 inflation picture, though private monthly readings have been surprising to the upside and consensus is looking for a jump from 1.3% y/y to 1.7% y/y."
Key Quotes:
"While Governor Stevens and the RBA clearly maintain some dovish bias, markets have generally interpreted the May interest rate cut to be the last of the easing cycle causing the AUD to strengthen in response to the announcement."
"Probably much to Stevens’ relief, AUD has since fallen back to six-year lows, reflecting weaker iron ore and energy prices, but also being dragged down by Grexit and Chinese equity market concerns."
"Rates markets are similarly pricing in a non-zero probability of a cut before year-end. But now that the Grexit/Shanghai Composite issues seem to have stabilized, Chinese growth is doing better than expected, and Aussie employment appears steady, the focus will be on whether the RBA erases the last of their easing bias and shifts towards more neutral territory, particularly given their ongoing concerns regarding elevated household debt."
"The missing piece of information now is the Q2 inflation picture, though private monthly readings have been surprising to the upside and consensus is looking for a jump from 1.3% y/y to 1.7% y/y."