Goldman Sachs Asset Management head of fixed income in Asia-Pacific Philip Moffitt

  • Says the next RBA meeting in February could be a “live” one for the RBA to go to an easing bias

Cites as reasons:

  • Slow global growth
  • Low inflation
  • National income in recession
  • The lower terms of trade from the commodity price crash

Says, though, that the action of the AUD could scupper an RBA return to an easing bias:

  • Risk is that if it keeps falling it offsets the need for lower rates
  • He says that at current levels (around 85 cents) it is still over-valued in the RBA’s eyes
  • “It’s probably as overvalued as it was at US90¢ because the equilibrium price has come down as well” (i.e the falling terms of trade)
  • “It’s not falling as far or as fast as you would have expected”
  • Says the high yield from Australian assets could keep it that way

More from Moffitt:

  • Market pricing indicates the odds of a rate cut in the next 12 months is greater than 50 per cent
  • Believed his call was less compelling from an investor’s perspective because yields are lower
  • “It’s not maybe as attractive to make that call today as it was three months ago. The trick is to be early and to make money as the market changes its mind.”
  • Fiscal policy, chiefly the budget update due this month, would pose a constraint on growth
  • “The market’s been softened up for a bad number by all this talk but I think it’s still going to be a shock. The government were elected on a policy of fixing [the budget] so they’re going to have to address it. Whatever they do is going t o be a negative for growth.”