RBA pauses at 1.5%, next meet 7 Feb 2017 - TDS

The RBA left the cash rate at 1.5%, as expected by TD and unanimous consensus, after delivering –50bp of cuts in May and August, notes Research Team at TDS.

Key Quotes

“The Board’s statement remained neutral, adding a dash of hawk via noting a more balanced outlook for global inflation, baking the higher terms of trade into national incomes, and noting that inflation will return to more normal levels (rather than just remain low).”

“We see the cash rate remaining at 1.5% over the coming year, with the next move being up via stretched housing pressures and no need for “emergency” cash rates with inflation returning to the band.”

“Rates Strategy: While there are no immediate signs that the RBA is looking to cut, the odds at the back end of 2017 could be higher given the recent flow of weak data.  Receive Sep 2017 RBA OIS and as a hedge sell Sep’17 Bank Bill Futures.”

“AUD Strategy: RBA assumed $US.77 in its November projections, and so Trump-led USD strength boosts tradable inflation and export incomes.  The commodity price rally suggests AUD at $US0.78+ while the AU-US 10yr spread of +42bp suggests $US0.71.  We are neutral at $US0.75, fade at $US0.77, buy dips towards $US0.72.”