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3 Mar 2015
Expecting RBA to cut rates today - Westpac
FXStreet (Bali) - Westpac changed its view in Dec 2014 to expecting 25bp cuts in both Feb and Mar 2015 and is sticking with this call, notes Sean Callow, FX Strategist at Westpac.
Key Quotes
"Before the RBA decision, we will see Aust Jan building approvals at 11:30am Syd/8:30am Sing/HK. Our forecast is in line with market consensus at -2.0%. This would continue to offset the 8% jump in Nov, while the underlying trend remains positive. Q4 balance of payments data will be released at the same time. This includes net exports, which are set to make a sizeable positive contribution to growth. Westpac is expecting Q4 net exports to add 0.7ppts qtr, 1.7ppts yr, with exports trending higher on expanding capacity in the mining sector and imports weak on mixed domestic demand. We are forecasting a partial rebound in Q4 public demand, up 0.7% following a 1.6% drop in Q3 that sliced 0.3ppts off Q3 GDP. Public demand in 2014 was weak as budgets both at the state and federal level remained under pressure."
The RBA decision today is likely to be a close call (2:30pm local, 11:30am Sing/HK). Market pricing has swung either side of 50/50 over the past week or more, now approaching the outcome around 60% priced for a further 25bp cash rate cut, to 2.0%. Westpac changed its view in Dec 2014 to expecting 25bp cuts in both Feb and Mar 2015 and is sticking with this call. If anything, the outlook for Australian inflation is more benign and growth more sluggish than it was three months ago. Should there be a steady hand at this meeting, a move no later than May would still be extremely likely.
"AUD would also probably gain no more than 40-50 pips on a steady hand (and probably not sustained for long) since the statement would surely leave the door wide open for further easing and thus have limited impact on market pricing for the terminal cash rate this cycle (now priced around 1.70%). The RBA is also likely to maintain its view that AUD remains above most estimates of its “fundamental value”. A rate cut and dovish statement should be worth perhaps 75 pips off AUD/USD, opening up a probe under 0.7700 but not taking out the 0.7626 rate cut low a month earlier."
"The Asia calendar is quiet, limited to Korea Feb CPI and Taiwan Jan export orders. Canada Q4 GDP will be released, with monthly GDP data pointing to a softer print. There are no market-moving US releases."
Key Quotes
"Before the RBA decision, we will see Aust Jan building approvals at 11:30am Syd/8:30am Sing/HK. Our forecast is in line with market consensus at -2.0%. This would continue to offset the 8% jump in Nov, while the underlying trend remains positive. Q4 balance of payments data will be released at the same time. This includes net exports, which are set to make a sizeable positive contribution to growth. Westpac is expecting Q4 net exports to add 0.7ppts qtr, 1.7ppts yr, with exports trending higher on expanding capacity in the mining sector and imports weak on mixed domestic demand. We are forecasting a partial rebound in Q4 public demand, up 0.7% following a 1.6% drop in Q3 that sliced 0.3ppts off Q3 GDP. Public demand in 2014 was weak as budgets both at the state and federal level remained under pressure."
The RBA decision today is likely to be a close call (2:30pm local, 11:30am Sing/HK). Market pricing has swung either side of 50/50 over the past week or more, now approaching the outcome around 60% priced for a further 25bp cash rate cut, to 2.0%. Westpac changed its view in Dec 2014 to expecting 25bp cuts in both Feb and Mar 2015 and is sticking with this call. If anything, the outlook for Australian inflation is more benign and growth more sluggish than it was three months ago. Should there be a steady hand at this meeting, a move no later than May would still be extremely likely.
"AUD would also probably gain no more than 40-50 pips on a steady hand (and probably not sustained for long) since the statement would surely leave the door wide open for further easing and thus have limited impact on market pricing for the terminal cash rate this cycle (now priced around 1.70%). The RBA is also likely to maintain its view that AUD remains above most estimates of its “fundamental value”. A rate cut and dovish statement should be worth perhaps 75 pips off AUD/USD, opening up a probe under 0.7700 but not taking out the 0.7626 rate cut low a month earlier."
"The Asia calendar is quiet, limited to Korea Feb CPI and Taiwan Jan export orders. Canada Q4 GDP will be released, with monthly GDP data pointing to a softer print. There are no market-moving US releases."