4 Feb 2014
RBA next: Impact on the AUD/USD
FXStreet (Barcelona) - The RBA will release its monetary policy decision - the first from 2014 - at 3.30 GMT, with market expectations looking for a no change in rates, with total attention towards a possible change in rhetoric.
Views from Westpac
""Most forecasters expect that with signs of response to low interest rates in housing construction, retail sales and business confidence and of course the sharp upside surprise in Q4 CPI, the RBA will drop its lingering easing bias this month. But in late 2013, this bias was only evident in the monthly minutes and quarterly statements. Hence if the RBA persists with this pattern then we will have to wait for Friday to see if the reference to another rate cut is retained."
"Still, today’s statement will have to include some new language on inflation and presumably AUD. At the Dec meeting, with AUD/USD around 0.91, the RBA deemed the currency to be “still uncomfortably high”, a verdict that seems hard to justify now (AUD TWI has fallen -3.7% since the last meeting). We suspect this phrase will be dropped or at least watered down but we may still hear that a weaker AUD is “likely to be needed to achieve balanced growth”, more of a long term comment. AUD/USD seems likely to emerge somewhat higher after the statement, but Friday’s SoMP seems the bigger RBA event for the week."
Views from RBS
"The RBA may be more comfortable with the AUD, but is still likely to say it is high. It may sound somewhat less dovish on rates in line with higher Q4 inflation, some improvement in business conditions and a surging housing market.
!However, recent soft labour market data and some additional global uncertainty may help keep the rates outlook balanced. We see some upside risk for the AUD and rates on a somewhat less dovish sounding RBA, although the currency will be heavily influenced by the Chinese PMI released over the weekend."
"The RBA typically avoids saying too much in its policy statement. The policy settings the RBA might like involve a still lower AUD, but they are probably increasingly reluctant to cut rates. Of course they realise to keep the AUD low or lower, it can't sound hawkish on rates."
"On balance it will probably prefer to avoid any market reaction and thus may attempt to get away with few wording changes in this statement. However, with a number of developments since December it may come off as disingenuous not making reference to what have been significant developments. On balance these developments suggest the RBA should be less inclined to cut rates and thus this statement may appear as such, creating upside risk for the rates outlook."
AUD/USD technicals
The downtrend in the AUD/USD is well established, with 'sell on rallies' strategies turning profitable. The last week and a half though, in anticipation of a potentially more hawkish RBA, flows against the AUD slowed down, contributing to a recovery off sub 0.87 levels, yet limited by 0.8820 solid offers.
If the RBA retains its aggressive rhetoric towards the AUD, plays down inflation figures and/or does not remove 'cuts as an option', selling should intensify, potentially retesting 0.8660/70 ahead of new trend lows depending on the number of new surprises in the statement. On the flip side, if the RBA appears to be more hawkish by noting inflationary pressures, softens its language towards the AUD, and/or removes 'further cuts as an option', AUD should see plenty of buying interest. Whether or not the buying enjoys follow through, the ability to regain 0.8820 short term will be key for the AUD/USD prospects today.
Views from Westpac
""Most forecasters expect that with signs of response to low interest rates in housing construction, retail sales and business confidence and of course the sharp upside surprise in Q4 CPI, the RBA will drop its lingering easing bias this month. But in late 2013, this bias was only evident in the monthly minutes and quarterly statements. Hence if the RBA persists with this pattern then we will have to wait for Friday to see if the reference to another rate cut is retained."
"Still, today’s statement will have to include some new language on inflation and presumably AUD. At the Dec meeting, with AUD/USD around 0.91, the RBA deemed the currency to be “still uncomfortably high”, a verdict that seems hard to justify now (AUD TWI has fallen -3.7% since the last meeting). We suspect this phrase will be dropped or at least watered down but we may still hear that a weaker AUD is “likely to be needed to achieve balanced growth”, more of a long term comment. AUD/USD seems likely to emerge somewhat higher after the statement, but Friday’s SoMP seems the bigger RBA event for the week."
Views from RBS
"The RBA may be more comfortable with the AUD, but is still likely to say it is high. It may sound somewhat less dovish on rates in line with higher Q4 inflation, some improvement in business conditions and a surging housing market.
!However, recent soft labour market data and some additional global uncertainty may help keep the rates outlook balanced. We see some upside risk for the AUD and rates on a somewhat less dovish sounding RBA, although the currency will be heavily influenced by the Chinese PMI released over the weekend."
"The RBA typically avoids saying too much in its policy statement. The policy settings the RBA might like involve a still lower AUD, but they are probably increasingly reluctant to cut rates. Of course they realise to keep the AUD low or lower, it can't sound hawkish on rates."
"On balance it will probably prefer to avoid any market reaction and thus may attempt to get away with few wording changes in this statement. However, with a number of developments since December it may come off as disingenuous not making reference to what have been significant developments. On balance these developments suggest the RBA should be less inclined to cut rates and thus this statement may appear as such, creating upside risk for the rates outlook."
AUD/USD technicals
The downtrend in the AUD/USD is well established, with 'sell on rallies' strategies turning profitable. The last week and a half though, in anticipation of a potentially more hawkish RBA, flows against the AUD slowed down, contributing to a recovery off sub 0.87 levels, yet limited by 0.8820 solid offers.
If the RBA retains its aggressive rhetoric towards the AUD, plays down inflation figures and/or does not remove 'cuts as an option', selling should intensify, potentially retesting 0.8660/70 ahead of new trend lows depending on the number of new surprises in the statement. On the flip side, if the RBA appears to be more hawkish by noting inflationary pressures, softens its language towards the AUD, and/or removes 'further cuts as an option', AUD should see plenty of buying interest. Whether or not the buying enjoys follow through, the ability to regain 0.8820 short term will be key for the AUD/USD prospects today.