eFX have summarised views from 10 banks ahead of the RBA
Citi: RBA To Disappoint Bears This Week; AUD Dips An Attractive Buy.
The tactical conclusion is that those looking for the RBA and underlying developments to rein in AUD's performance may be disappointed amid the broader AUD-positive macro backdrop. We are not among those looking for the RBA to ease at its policy meeting this week, with the recent positive surprise on Australian CPI creating additional breathing room for the RBA to be patient. However, even if the RBA surprises us and fulfills market expectations on a possible move, it is not clear that this would represent a significant blow to AUD. Interest rates will still be higher than those elsewhere and much of the rest of the reasoning for AUD buying would be unchanged. Indeed, many investors who have been slow to participate in recent moves might simply view any dip in AUD as providing a more attractive entry point on valuation grounds.
RBS: RBA To Buck Easing Trend For 3 Reasons.
The consensus strongly expects the Reserve Bank of Australia to cut its cash rate by 25bps from 1.75% to 1.50% tomorrow. This follows the Bank of Japan's decision to raise ETF purchases on Friday and likely Bank of England easing this week In contrast, we think the RBA will buck the trend for looser monetary policy and keep interest rates unchanged this month. First, Q2'16 CPI showed underlying inflation picking up q/q after weak Q1'16 CPI prompted the RBA to cut rates in May. Second, underlying inflation remains below the RBA 2-3% target but in line with the central bank's 1-2% forecasts for 2016. Third, Australia's employment data suggests the labour market is continuing to improve, supporting higher wages in future Last, the RBA's July statement opened the door to more policy action but gave no clear easing bias. We see the RBA waiting for more data including Q3'16 CPI before considering acting in Q4'16 after Gov. Stevens retires.
NAB: The RBA Likely On Hold; Here Is Why.
The market has continued to price toward the likelihood that the RBA will cut rates again at tomorrow's Board meeting, pricing in this morning a 64% chance of an easing, with 36 of 47 economists surveyed by Reuters on Friday forecasting a cut this week. NAB continues to expect that the RBA will, after due consideration, agree to leave the cash rate unchanged at 1.75%. Market price reaction will likely be greater in the event the RBA leaves rates on hold. The reason for NAB's view of no change in the cash rate stem primarily from analysis that the RBA's forecasts for growth and inflation will not have materially altered since the Board last met in July, and indeed since the last set of published RBA forecasts, released in May. Nor are international factors or market conditions suggesting new downside risks. When the Board met last month, the Governor's Media Statement stated that "holding monetary policy steady would be prudent at this meeting ..... (and that) ...... "over the period ahead, further information should allow the Board to refine its assessment of the outlook for growth and inflation and to make any adjustment to the stance of policy that may be appropriate." That assessment for growth and inflation, NAB expects, will not have materially altered since the Board last met. Last week's key CPI release for the June quarter revealed headline inflation of 1.0% y/y and underlying inflation of 1½%, inflation predicted in its May Statement on Monetary Policy.
Credit Agricole: A Hawkish Cut By The RBA.
Post the FOMC and the BoJ meetings, the focus for the AUD will be local factors. The RBA's August meeting and SOMP will be front and centre. The market is pricing in one and half 25bp rate cuts over the coming year, with about 60% chance of a cut in next week. The Minutes to the RBA's July Board meeting made it clear that it was waiting on inflation, labour market and housing market data before deciding whether to cut rates in August and we think that these data make a cut likely next week. Evidence from the housing market is that it continues to cool. Indeed, banks' own tightening of lending conditions is leaving some investors in apartments, especially foreign buyers, scrambling for finance to complete off-the-plan purchases. Labour market data continues to indicate modest jobs growth and a stable unemployment rate at around 5.7-5.8%, which is not placing significant upward pressure on wages growth. Underlying inflation stabilised in Q2 at 1.5% YoY and below the RBA's 2-3% target, but it was in line with the RBA's forecasts in its May SOMP. The latter makes a cut an uncertain proposition as the case for a cut will depend heavily on the RBA's new inflation forecasts to be released in its August SOMP. The SOMP therefore could have more of a market impact than usual as it will provide forward guidance on whether the RBA will follow up with further rate cuts. We think that the RBA could undertake a "hawkish cut" this week, specifically that it cuts rates but indicates that the bar for another cut is very high. After the initial negative reaction to the cut, the RBA's rhetoric could be supportive of the AUD.
UBS: RBA To Cut But It's A Close Call.
UBS expects the RBA to cut by 25bps (in line with consensus) to 1.50% based on the Q2 CPI print being just low enough to see a (final) rate cut, although recent stronger economic-growth and labour-market data make this a close call.
Barclays: RBA To Cut But It's A Close Call.
We think continued low underlying inflation will keep further RBA easing likely, as the central bank is likely to remain uncomfortable with the inflation dynamics, especially in light of falling energy prices and a stronger AUD. The headline consumer price index rose 0.4% on a q/q basis and 0.55% q/q sa in Q2 16, resulting in the year-on-year rate decelerating from 1.3% y/y in Q1 16 to 1.0%, the lowest level since 1999. There was a modest increase in underlying inflation, with the simple average of three underlying price measures increasing only 0.4% q/q sa in Q2 16; the y/y comparison was also low at 1.4% y/y. Although growth indicators remain mixed, we believe the RBA ultimately is likely to prefer to ease again, keeping inflation in mind. Furthermore, with the new government focusing on cutting government spending to control the deficit, the risks of growth slowing in H2 16 have increased. Our forecast remains for the RBA to cut rates 25bp at its August policy meeting, although we think will likely be a close call and we continue to see risks of a delay. Our forecast of a rate cut mainly reflects significant uncertainty about the sustainability of debt-fueled growth in China, although we also see renewed concerns within the RBA around recent AUD appreciation. The June employment report allayed fears that the domestic economy had slowed, but we still expect the central bank to focus on inflation dynamics as a key driver of monetary policy.
RBC: The RBA To Cut 25bps Tonight (80% priced in).
Q2 CPI confirmed that inflation is undershooting the target, and the leading indicators suggest that this will persist for several quarters. The RBA's forecasts are likely to suggest the same on Fri. As ever, the RBA's reluctant nature provides some uncertainty, and we do not expect an overtly downbeat assessment to be provided in its communication. Growth forecasts, if anything, are likely to be revised higher.
BNPP: RBA To Cut; Stay Bearish AUD.
We maintain our bearish outlook for the AUD heading into this week's Reserve Bank of Australia (RBA) policy meeting on 2 August. Our economists are still expecting the RBA to cut rates by 25bp (60% is priced into the AUD rates market), despite the slightly firmer Q2, underlying the CPI print this past week. Our BNP Paribas FX Positioning Analysis highlights that AUD exposure is actually net long, with a score of +14 (on our scale of +/- 50). We view such positioning as far too complacent against a backdrop of declining commodity prices, rising US real yields and potential RBA easing. We remain very bearish on the AUD targeting a move to 0.70 over the next three months.
Morgan Stanley: RBA To Cut Or See AUD/USD At 0.80.
Tomorrow the RBA will decide on interest rates. The July inflation indication provided by the Melbourne Institute has come down to 1%Y from 1.5%Y in June. Australia's import prices are falling rapidly, with China's RMB-TWI depreciation playing in. Should the RBA - against our economist's expectation - not cut rates tomorrow, AUDUSD will move to 0.80/0.81, in our view, with the weaker USD being the main catalyst. Caixin's July manufacturing indicator jumping by 2 points to 50.6 against the basically unchanged national PMI is an important data point supporting risk and commodity prices.
BofA Merrill: RBA To Cut This Week But AUD Implications Are Not A One-Way Bet.
With 2Q inflation in line with the RBA's forecasts, it may appear at first glance that the RBA can afford to sit this one out and remain on hold when the Board meets on 2 August. However, we view the underlying inflationary pulse in Australia as low and see the risks to the inflation outlook as skewed toward the downside. The pace of inflation, for both headline and core, declined further in 2Q. Headline CPI is at the lowest annual rate since March 1998 and core inflation is now at the weakest rate in the history of the series. We maintain our view that the RBA will ease in August, not only to support inflation, but also to improve growth prospects. We see softer labor market conditions adding to the case for the RBA to ease. Spare capacity in the labor market is weighing on domestic inflation as measured by non-tradable goods and service inflation (chart of the day). This is the part of CPI that can be directly influenced by monetary policy. FX implications: We expect an unchanged decision to have a bigger (positive) impact on the AUD than the 25bp cut that we expect. In the latter scenario, the AUD will certainly weaken but the depreciation is likely to be mild. The AUD is benefiting from the global search for positive yield and a small rate cut is unlikely to deter this structural inflow. The path of the AUD/USD exchange rate will be influenced more by external factors, particularly swings in risk sentiment, commodity prices and the RMB exchange rate. In relative terms, we believe the AUD looks better than its commodity peers and Asian currencies - the combination of yield, liquidity and an economy that has rebalanced more quickly than others suggests the AUD could outperform on the crosses, even if it weakens versus the USD in a risk-off environment.
