27 Apr 2016
AUD: Core CPI collapses – TDS
Research Team at TDS, suggests that the Australia’s domestic inflation, led by services, reflects ‘new normal’ low wage era.
Key Quotes
“March qtr underlying inflation, the RBA’s policy focus, collapsed from 1.99%/yr (was 2.04%) to 1.53%/yr. This is a record low for this underlying CPI series. TD and mkt (1.95%/yr) expected core inflation to be consistent with the RBA’s 2% forecast as implied in the February Statement on Monetary Policy.
As underlying CPI well undershot expectations, the AUD slumped a cent to $US0.764, back to last week’s lows. The next downside ‘target’ appears to be around the low $US0.75s, but trading is constrained ahead of tonight’s crucial FOMC decision.
ACGB yields slumped: 3yrs from 2.07% to 1.94%, while 10yrs are 2.604% compared with pre-CPI at 2.697%, steepening the curve.
OIS was 44% priced for an August cut earlier today, and is now the expectation for the 3 May meeting. The 15 April BBG poll had only 3/26 analysts expecting a rate cut next week, and perhaps more analysts fall over the line by Friday’s poll. Does today's report impact TD’s expectations for the RBA to sit tight at 2%? While it has shaken our conviction, we sit tight on our base case for now. The RBA Board does not tend to jump at shadows, and will no doubt next week discuss at length the details of the report.
Looking further ahead, the BBG poll has 2% as the slim median by year end, but the range remains a chunky 1.5% to 2.5%.”
Key Quotes
“March qtr underlying inflation, the RBA’s policy focus, collapsed from 1.99%/yr (was 2.04%) to 1.53%/yr. This is a record low for this underlying CPI series. TD and mkt (1.95%/yr) expected core inflation to be consistent with the RBA’s 2% forecast as implied in the February Statement on Monetary Policy.
As underlying CPI well undershot expectations, the AUD slumped a cent to $US0.764, back to last week’s lows. The next downside ‘target’ appears to be around the low $US0.75s, but trading is constrained ahead of tonight’s crucial FOMC decision.
ACGB yields slumped: 3yrs from 2.07% to 1.94%, while 10yrs are 2.604% compared with pre-CPI at 2.697%, steepening the curve.
OIS was 44% priced for an August cut earlier today, and is now the expectation for the 3 May meeting. The 15 April BBG poll had only 3/26 analysts expecting a rate cut next week, and perhaps more analysts fall over the line by Friday’s poll. Does today's report impact TD’s expectations for the RBA to sit tight at 2%? While it has shaken our conviction, we sit tight on our base case for now. The RBA Board does not tend to jump at shadows, and will no doubt next week discuss at length the details of the report.
Looking further ahead, the BBG poll has 2% as the slim median by year end, but the range remains a chunky 1.5% to 2.5%.”