3 May 2016
AUD weakness is the main exception of FX space - BBH
Research Team at BBH, suggests that the Australian dollar is the main exception amongst major FX today as it is off about 1% against the USD following the 25 bp rate cut that brought the cash rate to a new record low of 1.75%.
Key Quotes
“Given the OIS and indications from other derivative markets, the market seemed set for a symmetrical response. Even the surveys showed a nearly evenly divided outlook, as 12 of 27 analysts polled by Bloomberg expected a rate cut.
We had not been persuaded that last week's soft Q1 CPI was sufficient to put the RBA over the edge. However, in explaining the decision, Governor Stevens recognized that while inflation had been low for some time, it was exceptionally low now (CPI actually fell in Q1), and the outlook had diminished. He also noted "very subdued" growth in labor costs.
Before the RBA's announcement, the Australian dollar had climbed to $0.7720. Recall it finished last week near $0.7600. However, after the cut, the Australian dollar fell a little below $0.7560. The government forecast a little more than an A$37 bln deficit that was in line with expectations and set the stage for a national election in early July. This consideration may have also pushed the RBA into action today. If the election is called, as widely expected, the June 7 RBA meeting and the July 5 RBA meeting may be too close.”
Key Quotes
“Given the OIS and indications from other derivative markets, the market seemed set for a symmetrical response. Even the surveys showed a nearly evenly divided outlook, as 12 of 27 analysts polled by Bloomberg expected a rate cut.
We had not been persuaded that last week's soft Q1 CPI was sufficient to put the RBA over the edge. However, in explaining the decision, Governor Stevens recognized that while inflation had been low for some time, it was exceptionally low now (CPI actually fell in Q1), and the outlook had diminished. He also noted "very subdued" growth in labor costs.
Before the RBA's announcement, the Australian dollar had climbed to $0.7720. Recall it finished last week near $0.7600. However, after the cut, the Australian dollar fell a little below $0.7560. The government forecast a little more than an A$37 bln deficit that was in line with expectations and set the stage for a national election in early July. This consideration may have also pushed the RBA into action today. If the election is called, as widely expected, the June 7 RBA meeting and the July 5 RBA meeting may be too close.”