The RBA meeting is Tuesday
The RBA is expected to keep rates on hold at 0.75% on Tuesday but fears about a global slowdown have Goldman Sachs thinking about what could come next if they hit the zero bound.
Their warning? Quantitative easing might not be a great idea.
In a note on Friday, Goldman Sachs analysts emphasized that they don't see QE as their base case and that it won't be effective in lifting Australia's stock market.
They note that Australian government bond rates are much lower than when central banks in the US, UK and Europe launched QE. The Aussie 10-year is at 1.15% today; that compares to above 3% in the US when the Fed started QE. Rate cuts alone could pull it lower but QE would quickly run into the zero bound. Goldman estimates that a $200B QE program would be worth 40-50 bps in medium-to-long term yields.
The equity analysts don't directly address the Australian dollar but hint at some weakness, saying that companies with non-AUD denominated earnings would do well. They balance that by saying that domestic financials would struggle on low net-interest margins.
As for the shorter-term, the RBA decision is tomorrow at 0330 GMT. All 30 economists surveyed by Bloomberg see no change.
My thinking is that this kind of talk is often the sign of a bottom. Whenever analysts start dabbling in extreme hypotheticals, we've hit some kind of extreme. Plus, this chart looks like it may have found a bottom:
