7 Jul 2015
RBA policy decision: Doves disappointed – TDS
FXStreet (Barcelona) - According to TD Securities, today’s RBA interest rate decision to hold rates steady would have disappointed the doves, and the central bank might not ease further for quite sometime.
Key Quotes
“The RBA held the cash rate at 2% as expected, excluding an explicit easing bias. Price action into the RBA meeting suggested the market was positioning for a dovish stance, given the sharp falls in the iron ore price, the disappointing retail sales number last week and the pick up in volatility associated with Greece and China. On those counts today’s statement would have disappointed the doves.”
“Today’s statement was largely a copy and paste of June’s, with the following notable observations:
Removed: "Household spending has improved….and exports are rising. But a key drag on private demand is weakness in business capital expenditure in both the mining and non-mining sectors and this is likely to persist over the coming year ".
Added: ”The rate of unemployment, though elevated, has been little changed recently.”
“We are not exactly sure why the RBA removed the phrase on household spending and made no mention of capex. At the same time, the RBA did not state the unemployment rate will peak a little higher as it has said earlier this year. Coupled with the fact that China and Greece were mentioned in passing, today’s statement leaves us with the impression that the bar for further rate reductions is very high with the RBA content to remain on hold for quite sometime.”
“The OIS strip is little changed, with front IBs off 2 ticks. Aug IBs are pricing in 30% chance of the RBA cutting 25bps, Sep 40%, Oct 52%, Nov 70% and Dec near 80%.”
“While TD’s forecast is for the cash rate to remain at 2%, the risks of weaker data over the following months imply the next move is more likely to be down than up.”
Key Quotes
“The RBA held the cash rate at 2% as expected, excluding an explicit easing bias. Price action into the RBA meeting suggested the market was positioning for a dovish stance, given the sharp falls in the iron ore price, the disappointing retail sales number last week and the pick up in volatility associated with Greece and China. On those counts today’s statement would have disappointed the doves.”
“Today’s statement was largely a copy and paste of June’s, with the following notable observations:
Removed: "Household spending has improved….and exports are rising. But a key drag on private demand is weakness in business capital expenditure in both the mining and non-mining sectors and this is likely to persist over the coming year ".
Added: ”The rate of unemployment, though elevated, has been little changed recently.”
“We are not exactly sure why the RBA removed the phrase on household spending and made no mention of capex. At the same time, the RBA did not state the unemployment rate will peak a little higher as it has said earlier this year. Coupled with the fact that China and Greece were mentioned in passing, today’s statement leaves us with the impression that the bar for further rate reductions is very high with the RBA content to remain on hold for quite sometime.”
“The OIS strip is little changed, with front IBs off 2 ticks. Aug IBs are pricing in 30% chance of the RBA cutting 25bps, Sep 40%, Oct 52%, Nov 70% and Dec near 80%.”
“While TD’s forecast is for the cash rate to remain at 2%, the risks of weaker data over the following months imply the next move is more likely to be down than up.”