3 Feb 2015
RBA: Supporting the case for a cut today - Westpac
FXStreet (Bali) - Sean Callow, FX Strategist at Westpac, breaks down the key events for the day ahead, placing especial emphasis to today's RBA monetary policy decision, with the bank supporting the case for a cut today.
Key Quotes
The main event in Australia will be the RBA policy announcement at 2:30pm Syd. Since the weak Q3 GDP print, our forecast has been for a rate cut of 25bps. In the Dec meeting, the RBA left the cash rate unchanged and retained the guidance that “the most prudent course was likely to be a period of stability in interest rates”. However, since then, commodity prices have continued to fall. Q4 inflation, at the lower end of the RBA’s target range, leaves room for a cut. With the upcoming communications schedule, including the quarterly Statement on Monetary Policy and Governor Stevens’ testimony to Parliament next week, the timing suggests a rate cut this month rather than waiting until March. The ongoing drag on consumer confidence, and concerns about the budget and political outlook, also supports the case for a cut today.
We will also see the Dec building approvals and trade balance, both at 11:30am Syd. The international trade account is expected to remain in the negative for the ninth consecutive month. Westpac is forecasting the deficit to widen slightly, to -1bn, while the market median is -0.85bn. There are risks to downwards revision to the Nov numbers. The last print surprised to the upside, with ABS estimates of unit price of metal ores rising 24%, despite falling spot and contract prices.
Our forecast for building approvals is in line with consensus at -5.0%. The 7.5% print in Nov looks to be a one-off jump relating to one large redevelopment project, and buyer sentiment and construction-related finance approvals suggest activity levelling out.
The RBI is expected to keep policy on hold at today’s meeting today at 4:30pm Syd/11am local, after cutting out of cycle. Rates will probably be kept on hold until the Modi government presents the budget on 28 Feb, with the prospect of further cuts after that.
In the US, the market is expecting Dec factory orders to print at -2.4%, with durables orders down sharply and the investment trend unfavourable.
Key Quotes
The main event in Australia will be the RBA policy announcement at 2:30pm Syd. Since the weak Q3 GDP print, our forecast has been for a rate cut of 25bps. In the Dec meeting, the RBA left the cash rate unchanged and retained the guidance that “the most prudent course was likely to be a period of stability in interest rates”. However, since then, commodity prices have continued to fall. Q4 inflation, at the lower end of the RBA’s target range, leaves room for a cut. With the upcoming communications schedule, including the quarterly Statement on Monetary Policy and Governor Stevens’ testimony to Parliament next week, the timing suggests a rate cut this month rather than waiting until March. The ongoing drag on consumer confidence, and concerns about the budget and political outlook, also supports the case for a cut today.
We will also see the Dec building approvals and trade balance, both at 11:30am Syd. The international trade account is expected to remain in the negative for the ninth consecutive month. Westpac is forecasting the deficit to widen slightly, to -1bn, while the market median is -0.85bn. There are risks to downwards revision to the Nov numbers. The last print surprised to the upside, with ABS estimates of unit price of metal ores rising 24%, despite falling spot and contract prices.
Our forecast for building approvals is in line with consensus at -5.0%. The 7.5% print in Nov looks to be a one-off jump relating to one large redevelopment project, and buyer sentiment and construction-related finance approvals suggest activity levelling out.
The RBI is expected to keep policy on hold at today’s meeting today at 4:30pm Syd/11am local, after cutting out of cycle. Rates will probably be kept on hold until the Modi government presents the budget on 28 Feb, with the prospect of further cuts after that.
In the US, the market is expecting Dec factory orders to print at -2.4%, with durables orders down sharply and the investment trend unfavourable.