The latest Bloomberg survey (28 respondents) has 22 on hold and 6 looking for a 25 bp cut
- Market pricing indicates the probability of a cut at around 5%
On the basis of those numbers it seems clear the likelihood of a cut is only small.
But, will the RBA drop a surprise cut?
The reasons for a cut do exist:
- Last month's employment report was weak
- Last quarter's inflation report showed very weak core inflation
Countering these, the argument could go:
- Business conditions and confidence are strong, there is more employment growth coming soon
- The prospect for higher inflation are improving, which should bring inflation back into the RBA target band in time
On balance I am a 'no cut'.
But, to plan for a surprise cut, just in case; the Australian dollar will be sold very heavily. This will be more or less instant if there is a surprise so the opportunity to sell the AUD will come on rallies.
On a 'no cut' (what I expect) attention will turn to the statement to get an idea of which way the bank is leaning (I expect a neutral tone, with a lean to slight dovish the risk), this should keep the AUD in its ranging mode. Attention will then soon shift to the RBA's Statement on Monetary Policy due Friday this week.
