30 Jan 2015
Watch out for a dovish RBA - UBS
FXStreet (Córdoba) - The Reserve Bank of Australia (RBA) will hold its first policy meeting of the year next Tuesday, and UBS analyst think investors should beware of the risk that it, too, will issue a dovish statement.
Key Quotes
“In recent weeks, major central banks have delivered surprises, ranging from the Bank of England's unanimous vote for no hikes, the Bank of Canada's unexpected rate cut, the Monetary Authority of Singapore's unscheduled meeting to ease policy, and most recently the Reserve Bank of New Zealand's dropping of its tightening bias”.
“Thus, investors should beware of the RBA potentially becoming the next central bank to pull a dovish surprise. Despite firmer-than-expected December labor market data and 4Q14 inflation figures, iron ore prices remain in decline, having fallen more than 7% year-to-date to reach a new multi-year low”.
“We therefore see the risk that the RBA might abandon its long-held statement that ‘the most prudent course is likely to be a period of stability in interest rates’ and instead open the door for further rate cuts”.
“In this context, we see downside risk to our three-month AUD/USD target of 0.77, and advise against adding AUD exposure until the exchange rate moves below its estimated fair value of 0.74–0.75”.
Key Quotes
“In recent weeks, major central banks have delivered surprises, ranging from the Bank of England's unanimous vote for no hikes, the Bank of Canada's unexpected rate cut, the Monetary Authority of Singapore's unscheduled meeting to ease policy, and most recently the Reserve Bank of New Zealand's dropping of its tightening bias”.
“Thus, investors should beware of the RBA potentially becoming the next central bank to pull a dovish surprise. Despite firmer-than-expected December labor market data and 4Q14 inflation figures, iron ore prices remain in decline, having fallen more than 7% year-to-date to reach a new multi-year low”.
“We therefore see the risk that the RBA might abandon its long-held statement that ‘the most prudent course is likely to be a period of stability in interest rates’ and instead open the door for further rate cuts”.
“In this context, we see downside risk to our three-month AUD/USD target of 0.77, and advise against adding AUD exposure until the exchange rate moves below its estimated fair value of 0.74–0.75”.