No more scheduled FX-important events on the calendar today until the RBA decision at 0430GMT.
I can see the arguments for a ‘no change’ decision from the RBA today. But I think the arguments for a rate cut are more compelling.
For a cut:
- Low inflation
- Low house price inflation
- Capex flows are drying up (official figures are out next week, but recent information is telling us what’s happening)
- Forward-looking demand indicators (PMIs, job ads, building approvals) all weak
- AUD is persistently high
Against a cut:
- It seems to me that ‘wait and see’ (wait for more data) is the only argument against a rate cut. Though the retail sales data yesterday wasn’t as bad the headline figures made it appear, so maybe this is one sign of resilience in the economy
Today is a good opportunity for the RBA to get ahead of the game. A rate cut would give a jolt to the yield chasers, letting them now their trade is not a one-way bet. Though, having said this, getting a 2.75% yield isn’t a huge difference to a 3% yield. I reckon they’d be in bidding just at lower levels. Still a lower AUD is a goal for the government and the RBA.
I’m looking for a 25 basis point cut.
Given the conservative nature of the RBA, though (‘wait and see’) my confidence level is low.
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What’s it all mean for AUD?
I think the market is a short AUD going into this decision.
‘No cut’ means we move quickly back up through to 1.0300/20, but if higher there is resistance 1.0350.
‘Cut’ (of 25 basis points) sees 1.0140/50 and maybe 1.0100. But with the market short there should be some support there, at least initially.
‘Cut’ (of 50 basis points – which is what I’d really like to see, but that aint gonna happen) then AUD falls through 1.01 and tests parity. (Again, 50bp cut aint gonna happen).
Views (especially contradictory) welcome, as always.
