RBA to keep the cash rate on hold at 1.5% - TDS
Analysts at TD and consensus expect the RBA to keep the cash rate on hold at 1.5% at tomorrow’s meeting, the Bank to reaffirm a neutral monetary policy bias and suggests that there should be a muted market response.
Key Quotes
“There has been minimal domestic data released since the last meeting, but the overall tone has been positive with Building Approvals, Retail Sales, Employment, Capex supporting the Bank’s optimistic / glass half full outlook for the domestic economy. Disappointment with Trump politics aside, offshore data has continued to surprise to the upside reinforcing the Bank’s upbeat outlook on global activity as well.”
“We believe there is little basis for the RBA to talk down the AUD in tomorrow’s statement. Our fair value model for the AUD suggests that levels around US$0.80 are justified. On balance firmer domestic data, stronger iron ore / base metal prices, higher equities and non-commercial CFTC positioning are all supportive of current levels. All the Bank can really do is state that the AUD is likely to contain price pressures and complicate the economic transition. There is nothing new here. Anything more would have to be considered disingenuous.”
“The Bank is likely to mention its satisfaction on the macro-prudential front, given new interest only loans are approaching the 30% ‘line in the sand’ limit as a proportion of new residential mortgage lending. That said, this development does little to alter the Bank’s ‘wait and see’ outlook for monetary policy with the Bank noting in its August Minutes that developments here will warrant ‘careful monitoring’.”
“Last week we highlighted the sharp change in RBA rate expectations following the Q1 GDP print in early June, with virtually the whole IB strip currently pricing in the chance of a RBA hike. Even if one believes short dated forwards are pricing in too aggressive a move in RBA policy vs the Fed, we find the AU-US 10yr spread has widened relatively more than would be implied by short end spreads.”