RBA to pause for an extended period before easing again in Q2 2017 – RBC CM

Sue Trinh, Senior Currency Strategist at RBC Capital Markets, notes that the RBA cut the cash rate by 25bps and gave little forward guidance, but the easing bias in the July statement was notably absent.

Key Quotes

“With OIS markets discounting a 25bps rate cut with 70–75% probability and 20 of 25 analysts surveyed by BBG calling for a rate cut, AUD slid a quick 80pips before retracing a large portion of the losses. The decision put a further wedge between AUD and NZD.

RBC expects the RBA to now pause for an extended period before easing again in Q2 2017. AUD has been cushioned by the confluence of support (100dma and 40dma) at 0.7480/90, as OIS markets already discount ~12bps of cuts by November and a full 25bps of cuts by August 2017.

The domestic data prior to the RBA announcement was poor. Building approvals fell by 3% (cons: +0.8%) and the trade deficit was much wider than expected at AUD3.2bn (cons: AUD2bn) on higher oil and lower gold exports, putting Q2 nominal GDP on a weak footing.”