6 Apr 2015
Markets pricing in a 25bp rate cut by the RBA – BBH
FXStreet (Barcelona) - The Brown Brothers Harriman Team previews the key event this week in Australia, the RBA meeting, noting that a ‘sell the rumour buy the fact’ type of activity mught be seen if the central bank cuts rates.
Key Quotes
“Indicative pricing suggests the market has gone a long way (70-80%) toward pricing in a 25 bp rate cut at this week's RBA meeting. Economists seem less sanguine as shown in the surveys pointing to a stand pat decision. The continued collapse of iron ore prices suggests that the negative terms of trade shock is an ongoing challenge.”
“We think the RBA decision is a closer call than the market believes. We are also concerned that there may be a "sell the rumor buy the fact" type of activity on a rate cut, which some will likely see as the last in the cycle.”
“Speculators in the futures market have slowly been begun picking a bottom to the Australian dollar, which fell to new multi-year lows in the second half of last week. Even at 2.0%, the RBA's cash rate would be highest among the high income countries, and it sports an AAA rating as well.”
“The failure to deliver a rate cut this week could also see the Aussie strengthen, but under that scenario the upside looks more limited. Many players will feel more confident of a May cut, especially if the accompanying statement is at all encouraging.”
Key Quotes
“Indicative pricing suggests the market has gone a long way (70-80%) toward pricing in a 25 bp rate cut at this week's RBA meeting. Economists seem less sanguine as shown in the surveys pointing to a stand pat decision. The continued collapse of iron ore prices suggests that the negative terms of trade shock is an ongoing challenge.”
“We think the RBA decision is a closer call than the market believes. We are also concerned that there may be a "sell the rumor buy the fact" type of activity on a rate cut, which some will likely see as the last in the cycle.”
“Speculators in the futures market have slowly been begun picking a bottom to the Australian dollar, which fell to new multi-year lows in the second half of last week. Even at 2.0%, the RBA's cash rate would be highest among the high income countries, and it sports an AAA rating as well.”
“The failure to deliver a rate cut this week could also see the Aussie strengthen, but under that scenario the upside looks more limited. Many players will feel more confident of a May cut, especially if the accompanying statement is at all encouraging.”