RBA: Prospects of an August rate cut remain very strong - Rabobank

Jane Foley, Research Analyst at Rabobank, suggests that there were sufficient negative nuances contained within the recent RBA’s policy outlook to infer that the prospects of an August rate cut remain very strong.

Key Quotes 

On the global economy the RBA judge growth to be at a “lower than average pace” with conditions now “difficult” for a number of emerging market economies. Meanwhile, attention in financial markets is turning to “particular risk events”. These no doubt include the risk of Brexit and the US elections on top of the persistent fear that China risks could re-emerge. We judge the latter risks to be fairly substantially and this could have a clear and direct implication for the Australian economic outlook.

From the RBA’s comments on the exchange rate it is clear that any signs of recovery in the value of the AUD would increase the risks of another rate cut. If the USD remains lacklustre over the coming months, the RBA may feel an increased need to nudge down AUD/USD through another reduction in its policy rate.

Although the Australian jobs market has held up relatively well in overall in the face of job losses in the mining sector, wage inflation remains very weak and this is suggestive of soft consumer demand and low levels of inflation going forward.

Although we have pared our broad-based expectations for the USD in the wake of latest disastrous US data releases, we continue to anticipate that AUD/USD will push lower medium-term with a divergence in policy rates between the RBA and the Fed potentially dragging the Aussie towards 0.70 by year end.”