2 Dec 2013
Flash: RBA to remain comfortably neutral today - Nomura
FXstreet.com (Barcelona) - There is little doubt about the intentions to remain on hold by the RBA on its monetary policy later today, with the Central Bank sitting comfortably neutral for now, notes Charles St-Arnaud, Economist at Nomura.
Key Quotes
"The RBA will hold its monetary policy meeting on 3 December. At its last board meeting in Nov, the RBA left its policy rate unchanged at 2.50% and stated that, "the Board judged that the setting of monetary policy remained appropriate”. The board also added that, it "will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target”. This signals a relatively neutral stance, and we believe that the RBA will leave monetary policy on hold for a considerable period of time. We anticipate its next move will be a hike in the first half of 2015."
"Much of the market movement since the last RBA meeting has been dominated by the fall in the AUD/USD exchange rate, with a 5c fall over the period. Given the December RBA meeting is the last of the year, it is worth looking back over the course of the year at AUD. Having traded well over parity until late May, the AUD has fallen from a peak of 1.06 by 16 cents to its current levels – close to the lows of the year."
"In the rates market, the OIS pricing for the December RBA meeting shows 1bp of cuts are priced into the meeting. The terminal rate for the RBA pricing is at 2.399% at the May meeting. Over the course of 2013, the 1yr OIS pricing showed that cuts were expected until early September, ahead of the FOMC meeting. At its maximum, as much as 60bp of rate cuts were expected. These expectations reached their apogee ahead of the May RBA meeting (25bp cut) and August meeting (25bp cut) before pricing changed to reflect hikes over this period. Since early October, the 1yr OIS has expected some level of rate hikes. The RBA next meets in February. OIS pricing for the date shows 5bp of cuts are priced in, or a 20% chance of a 25bp cut."
Key Quotes
"The RBA will hold its monetary policy meeting on 3 December. At its last board meeting in Nov, the RBA left its policy rate unchanged at 2.50% and stated that, "the Board judged that the setting of monetary policy remained appropriate”. The board also added that, it "will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the target”. This signals a relatively neutral stance, and we believe that the RBA will leave monetary policy on hold for a considerable period of time. We anticipate its next move will be a hike in the first half of 2015."
"Much of the market movement since the last RBA meeting has been dominated by the fall in the AUD/USD exchange rate, with a 5c fall over the period. Given the December RBA meeting is the last of the year, it is worth looking back over the course of the year at AUD. Having traded well over parity until late May, the AUD has fallen from a peak of 1.06 by 16 cents to its current levels – close to the lows of the year."
"In the rates market, the OIS pricing for the December RBA meeting shows 1bp of cuts are priced into the meeting. The terminal rate for the RBA pricing is at 2.399% at the May meeting. Over the course of 2013, the 1yr OIS pricing showed that cuts were expected until early September, ahead of the FOMC meeting. At its maximum, as much as 60bp of rate cuts were expected. These expectations reached their apogee ahead of the May RBA meeting (25bp cut) and August meeting (25bp cut) before pricing changed to reflect hikes over this period. Since early October, the 1yr OIS has expected some level of rate hikes. The RBA next meets in February. OIS pricing for the date shows 5bp of cuts are priced in, or a 20% chance of a 25bp cut."