Here is a nice piece on How To Trade AUD Into RBA? – Views From 15 Major Banks
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The following are the expectations for tonight’s RBA February policy meeting as provided by the economists at 15 major banks along with some strategies to trade the AUD into the meeting as provided by the FX strategists at these banks.
Goldman:
There is a higher hurdle for RBA to push AUD weaker. This week, we expect the RBA to shift to an easing bias, before cutting rates by 25bp in each of the March and August meetings...And with the market rapidly pricing 16bp in cuts for the February meeting this week – and keenly focused on central bank surprises – a cut this week is fast becoming the base case for the market. So how much can the AUD depreciate following a (surprise) cut? Should the RBA cut this week, what would the short term reaction be in AUD? To answer this, the Bank of Canada’s surprise rate cut last week provides a natural experiment. The 25bp rate cut, which came as a genuine surprise to forecasters and the market, caused the currency to weaken 2.4% on the day, and around another 0.3% in the subsequent week. Moreover, this came in conjunction with forward rates in Canada pricing additional easing, with the Dec-15 Canadian bank acceptance bill rate falling over 60bp. Using this as a guide, a generous estimate of downside for the AUD/USD from here is to move to around 0.75 vs USD.
JP Morgan: While J.P. Morgan economists do not expect an RBA rate cut next week, we think risks are biased towards a cut and a statement which is mildly dovish. Heading into next week’s RBA meeting we thus recommend shorting AUD versus EUR. That being said, the trade may take time develop as the risks of an aggressively dovish statement are low given that 1) the RBA remains in a structural easing cycle (which delivers modest amounts of easing at any given time); 2) the RBA will have an eye on the potentially positive growth impact of lower petrol prices, lower AUD and lower rates; and 3) there has not been enough of a cyclical deterioration to warrant an aggressively an dovish statement,
Deutsche Bank: Contrary to consensus, we share our economists’ view that the RBA will refrain from cutting rates at this stage. Given current market pricing, any outcome short of a cut may disappoint the market…In our baseline scenario – a statement only marginally more dovish than December’s – AUD would likely squeeze. The cleanest way of trading a contrarian RBA view is to be long AUD/NZD. Although AUD responded to the RBNZ surprise in sympathy with NZD, the reverse effect may not occur: too many market participants were wrong-footed last week for a relatively hawkish AUD surprise to lead to mass desertions of fresh NZD shorts.
Barclays: We expect the RBA to cut 25bp this week. The market is divided with six economists including ourselves calling for a cut while 21 others looking for unchanged outcome. And OIS is currently pricing in c.15bp cut at this meeting and 50bp cut by May. A cut by the RBA this week, earlier than the market expects, is likely to weigh further on the AUD. This is consistent with our technical strategy team’s AUD bearish view
BNPP: We remain long AUDNZD heading into Tuesday’s RBA meeting result, continuing to target the cross reaching 1.085. We think the RBA will deliver the next leg of gains on this trade. Our economist continues to expect the central bank to leave policy unchanged Tuesday, in contrast to market pricing of 65% chance of a rate cut. If correct, AUD should extend gains.
Morgan Stanley: Market expectations for an RBA rate cut at tomorrow’s meeting have increased following the dovish move from the RBNZ, although the consensus of economists’ forecasts is still for unchanged rates. Even if the RBA leaves rates unchanged, a significant downward revision to forecast is likely. Hence, we expect AUDUSD to extend the downtrend, with the 0.7265 area being the next target.
BofA Merrill: We continue to expect the RBA will keep policy rates on hold for all of 2015. Our forecast is retained as a small but increasing number of market economists look for a short-term easing of monetary policy. Further, financial markets have become increasingly aggressive in pricing in rate cuts – somewhat fuelled by media speculation. The latest drop in the AUD has been fuelled by expectations of a rate cut at this week’s RBA meeting. Despite the RBA risk, the medium-term rationale for short AUD/USD trade remains compelling. Lower commodity prices and deterioration in vol-adjusted carry have fueled the recent drop in AUD. But Australia’s balance of payments reckoning for 2015 has yet to transpire and policy divergence will remain supportive for the USD.
NAB: We’ve seen the data, we’ve seen what’s happening offshore and read what the press pundits are saying the RBA will or won’t do today at 2.30 after the RBA Board meets for the first time today. The market has backed off a touch from yesterday though still priced for an easing from the RBA today with the RBA 30 day futures contract pricing in a 62% chance in that curve, a cut fully priced in by the March meeting. So the rates market and AUD are a little more two-way priced and prone than yesterday.
Credit Suisse: The market is currently pricing a 65% chance of a 25bp cut at this week’s RBA meeting, following the dovish surprises from the BoC and RBNZ. We view a rate cut this week as a coin flip, as Governor Stevens may prefer to take a more gradual approach. Additionally, the MPR may get some attention, as the sharp drop in key commodity prices since the last report in November 2014 may result in the inflation and growth outlook being revised lower.
Credit Agricole: The AUD was among the strongest currencies today, mainly on the back of the recent data suggesting that the RBA may refrain from considering a more dovish monetary policy stance. This may be partly due the latest data suggesting stabilising price developments. At 1.5 (prev. 1.5%), the January TD security inflation gauge remained stable. However, intact global growth uncertainty and weak commodity price developments should keep the risk of further slowing inflation intact. Accordingly the RBA is more likely to consider a more dovish policy stance and that should keep the AUD a sell on rallies.
Nomura: The RBA Board meets on Tuesday 3 February, amid unusually intense media and market speculation. On balance, we expect a 25bp reduction in the cash rate, although we acknowledge that this will be a line-ball decision and we assess the probability of a move as being only a little above 50%. However, if the RBA chooses to hold off in February, then the probability of a move in March rises, and we expect an additional 25bp cut in Q2. There are risks to our call of an imminent rate cut, notably the impact of the lower AUD, and its dramatic recent increase in volatility, financial stability concerns and the RBA’s forward guidance.
UBS: We can’t rule out the RBA cutting the cash rate, but we expect them to hold given high Q4 core CPI. However, they will still likely replace their long-held ‘neutral’ bias with an explicit easing bias that sets up a March cut, given their SOMP will also likely cut forecasts for mid-15 for both real GDP & underlying CPI.
Westpac: The Reserve Bank Board meets next week on February 3. Since we changed our view on December 4 last year we have consistently argued that the board will decide to cut the cash rate by 25bps at this February meeting. We also expect the Bank to lower its growth forecasts in the February SoMP. The Bank is likely to adjust its forecasts for the soft spot in activity that it did not anticipate in its November forecasts, and to include the ongoing drag from the terms of trade on nominal incomes. These negatives will dominate any positive effects from lower fuel prices and a lower AUD.
RBS: The RBA meets this week and after the BoC and RBNZ took steps in the dovish direction, the expectation that the RBA follows suit with either a very clear signal of an easing bias or an outright cut have increased. This week’s meeting will be followed by a release of the RBA’s Statement on Monetary Policy (SoMP), including new forecasts. While we think a more clearly dovish stance is very likely, it may be attractive for the RBA to cut rates alongside its new forecasts. After the BoC’s surprise decision to cut rates, it is hard to rule out a surprise rate cut despite previous signalling language suggesting a period of stability is the most likely course. The trend in commodity prices and the stronger USD, paired with a likely dovish statement by the RBA this week, could keep the downward pressure on the AUD.
BTMU: The chances are now certainly higher for a rate cut at the next meeting on 3rd February, reinforcing our forecast of a lower AUD/USD.
