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22 Apr 2015
RBA rate cut too close to call – BTMU
FXStreet (Barcelona) - Derek Halpenny, European Head of GMR at Bank of Tokyo-Mitsubishi UFJ, argues that today’s Australian CPI data has raised doubts regarding the need for a rate cut by the RBA, while inflation data suggests against a move, the appreciation in AUD suggests otherwise.
Key Quotes
“The inflation data has brought some doubts back over whether the RBA needs to ease further. The trimmed mean annual CPI rate in Q1 came in at 2.3%, up from 2.2% and 0.1 point higher than expected. Similarly, the weighted mean annual CPI rate came in 0.1 point higher than expected at 2.4%.”
“Given that the RBA aims for inflation of between 2.0-3.0%, this data will not concern the RBA and we see little reason why the data may veer the RBA away from a rate cut if other conditions are deemed to warrant action.”
“While the RBA minutes from the April meeting included the suggestion of waiting to assess other data before deciding on the need for action, the speech from Governor Stevens this week is more relevant given his comments were made after the stronger than expected jobs data that came after the April meeting.”
“The CPI data doesn’t really dilute the content of Governor Steven’s speech and hence it remains finely balanced on whether the RBA feels the need to ease further.”
“China taking action this week and the potential for further easing may certainly have reduced the urgency of taking action at the May meeting. Iron ore prices have also moved higher this month."
“What is likely to play a role in the easing debate will be where the AUD/USD rate is. Governor Stevens was explicit in his view that further declines are likely – the currency has been in a relatively narrow trading range since the start of February.”
“But again, given today’s price is roughly in the middle of the 0.7500-0.8000 range that has prevailed in that period, the current price does not signal an urgent need for action.”
“However, the 5th May is a long way off in foreign exchange time and further gains from here might see expectations of a rate cut revive again. That argues for gains to the upside being capped at least until the meeting on 5th May.”
Key Quotes
“The inflation data has brought some doubts back over whether the RBA needs to ease further. The trimmed mean annual CPI rate in Q1 came in at 2.3%, up from 2.2% and 0.1 point higher than expected. Similarly, the weighted mean annual CPI rate came in 0.1 point higher than expected at 2.4%.”
“Given that the RBA aims for inflation of between 2.0-3.0%, this data will not concern the RBA and we see little reason why the data may veer the RBA away from a rate cut if other conditions are deemed to warrant action.”
“While the RBA minutes from the April meeting included the suggestion of waiting to assess other data before deciding on the need for action, the speech from Governor Stevens this week is more relevant given his comments were made after the stronger than expected jobs data that came after the April meeting.”
“The CPI data doesn’t really dilute the content of Governor Steven’s speech and hence it remains finely balanced on whether the RBA feels the need to ease further.”
“China taking action this week and the potential for further easing may certainly have reduced the urgency of taking action at the May meeting. Iron ore prices have also moved higher this month."
“What is likely to play a role in the easing debate will be where the AUD/USD rate is. Governor Stevens was explicit in his view that further declines are likely – the currency has been in a relatively narrow trading range since the start of February.”
“But again, given today’s price is roughly in the middle of the 0.7500-0.8000 range that has prevailed in that period, the current price does not signal an urgent need for action.”
“However, the 5th May is a long way off in foreign exchange time and further gains from here might see expectations of a rate cut revive again. That argues for gains to the upside being capped at least until the meeting on 5th May.”