Back
5 Aug 2014
RBA preview: Widely expected to maintain neutral tone - Westpac
FXStreet (Bali) - Sean Callow, FX Strategist at Westpac, notes that the RBA is widely expected to maintain a neutral tone in today's policy meeting.
Key Quotes
The RBA is widely expected to maintain a neutral tone as it keeps the cash rate at 2.5% today (2:30pm Syd/12:30pm Sing/HK). Since the July meeting we have seen solid Q2 inflation data and tentative signs of recovery in the consumer’s mood e.g. June retail sales released yesterday and some improvement in sentiment surveys. This should see the retention of the phrase “the most prudent course is likely to be a period of stability in interest rates”. Language on AUD should also be unchanged: “The exchange rate remains high by historical standards, particularly given the declines in key commodity prices”. It is very difficult for the RBA to adopt stronger language without also changing its bias on rates. With pricing still leaning towards rate cut risks (-5bp by Dec), there could be a small AUD gain on the statement, with risks over the day towards 0.9370.
Ahead of the RBA meeting we will see Australia’s June trade data (11:30am Syd/9:30am Sing/HK). May’s deficit was considerably wider than expected, at –AUD1.9bn and we see no improvement yet. Customs data on goods imports indicates -1% m/m but exports should also fall. We see -2% on export revenues, with falls in both prices and volumes of iron ore, coal and rural goods. This would produce a deficit of -2.2bn, the largest gap since Nov 2012. Consensus is -2.0bn. Clearly Q2 will be a sharp deterioration from Q1’s strong net export contribution to GDP. Better numbers should emerge in coming months.
Asia’s calendar is fairly busy but probably not very influential on FX markets. The Reserve Bank of India is expected to hold its repo rate at 8.0%, we will see services PMIs in China and India plus CPI in Taiwan and the Philippines. Indonesia’s Q2 GDP is expected up 5.2% y/y. Final July Markit PMIs are due in Europe. The US data calendar holds moderate interest: the Jul non-manufacturing ISM, seen ticking up to a healthy 56.5 headline and Jun factory orders, expected up 0.6% after -0.5% in May.
Key Quotes
The RBA is widely expected to maintain a neutral tone as it keeps the cash rate at 2.5% today (2:30pm Syd/12:30pm Sing/HK). Since the July meeting we have seen solid Q2 inflation data and tentative signs of recovery in the consumer’s mood e.g. June retail sales released yesterday and some improvement in sentiment surveys. This should see the retention of the phrase “the most prudent course is likely to be a period of stability in interest rates”. Language on AUD should also be unchanged: “The exchange rate remains high by historical standards, particularly given the declines in key commodity prices”. It is very difficult for the RBA to adopt stronger language without also changing its bias on rates. With pricing still leaning towards rate cut risks (-5bp by Dec), there could be a small AUD gain on the statement, with risks over the day towards 0.9370.
Ahead of the RBA meeting we will see Australia’s June trade data (11:30am Syd/9:30am Sing/HK). May’s deficit was considerably wider than expected, at –AUD1.9bn and we see no improvement yet. Customs data on goods imports indicates -1% m/m but exports should also fall. We see -2% on export revenues, with falls in both prices and volumes of iron ore, coal and rural goods. This would produce a deficit of -2.2bn, the largest gap since Nov 2012. Consensus is -2.0bn. Clearly Q2 will be a sharp deterioration from Q1’s strong net export contribution to GDP. Better numbers should emerge in coming months.
Asia’s calendar is fairly busy but probably not very influential on FX markets. The Reserve Bank of India is expected to hold its repo rate at 8.0%, we will see services PMIs in China and India plus CPI in Taiwan and the Philippines. Indonesia’s Q2 GDP is expected up 5.2% y/y. Final July Markit PMIs are due in Europe. The US data calendar holds moderate interest: the Jul non-manufacturing ISM, seen ticking up to a healthy 56.5 headline and Jun factory orders, expected up 0.6% after -0.5% in May.