Weekly FX – RBA rate cut delayed

by: Georgette Boele

The AUD edged higher towards 0.95 as domestic data releases continue to reduce the likelihood that the RBA will cut the cash rate next month. The construction sector contracted at a lower rate in September and business conditions were less negative. The unemployment rate also declined by 0.2pp to 5.6% due to lower participation rate. We continue to think that RBA rate cuts remain on the cards, with December being the most likely option. First, inflation is at the lower end of the RBA 2-3% target. Second, job growth is at the slowest pace since 2009. Third, the economy is growing at a below trend rate. A rate cut in December is not fully priced in by the market. Therefore, we believe that the AUD should come under pressure again. Meanwhile, the NZD lacked direction as domestic data releases were mixed. Business confidence in Q3 rose, but the pace of expansion in the manufacturing sector eased in September. We stick to our year end AUD/USD and NZD/USD forecasts of 0.88 and 0.78.

Weekly - Commodity FX AUD_USD