Forex – Low CPI adds to the case for the RBA to cut again – NAB Global Markets

FXstreet.com (Barcelona) - The AUD/USD is trading sharply higher to start the week, up 40 pips at 1.0318 last. In recent weeks both HSBC China PMI, and Aussie CPI came in below expectations which some analysts believe could lead to interest rate cuts by the RBA in coming months.

According to analysts at NAB Global Markets, “There were some encouraging signs in last week’s CPI release for those who are hoping that the RBA will give the economy a monetary shot in the arm in coming months. The release showed that the inflation performance of the economy is ‘improving’ (getting lower) and the lower starting point for our CPI forecast means that we have made some relatively small, but nonetheless important, downward revisions to our outlook for annual inflation over the remainder of 2013."

Furthermore they added, “Certainly the Board will have a serious discussion at next week’s May Board meeting about cutting the cash rate. Right now, while it is clear the risk of a May cut is higher after the CPI, we still see the key drivers of RBA policy ahead as domestic demand and activity. A low inflation outlook is a necessary but not sufficient condition for another rate cut. At the May meeting, it is more likely that the Board will decide to wait for another round of activity indicators (notably unemployment and CAPEX) before pulling the trigger. This consideration leads us to continue to prefer June as the month for the next cut of 25 basis points.”