FX Flash – Further RBA easing still likely

by: Roy Teo

AUD supported as RBA adopts wait and see approach

As expected the Reserve Bank of Australia (RBA) left monetary policy unchanged today. The Australian dollar (AUD) moved higher temporarily as the RBA statement was relatively neutral with little sense of urgency to lower the Official Cash Rate (OCR) further. Nevertheless, the RBA remains cautious on China’s economic outlook and potential effects of UK referendum outcome on global economic activity. On the domestic front, recent data suggest that overall growth is continuing despite a very large decline in business investment. However an appreciating exchange rate could complicate the rebalancing in the economy. Inflation remains low and wage growth are very subdued.

 

FX-Flash-Further-RBA-easing-still-likely-5-July-2016.pdf (56 KB)
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Further RBA easing still likely

We maintain our view that the RBA is likely to lower the OCR by 25bp to 1.5% later this year. Financial markets have priced in a 25bp rate cut in November. However we do not rule out an earlier move as soon as August. We suspect that the RBA is waiting to assess the political landscape domestically and inflation print in the second quarter due to be released on 27 July. We favour fading any recovery in the AUD above 0.76 for downside target of around 0.72 in the coming months.