There are nonetheless three weeks to go till the subsequent central financial institution assembly in Australia, however the market is already comparatively sure. A 25 foundation level reduce in the important thing rate of interest has been absolutely priced in by the market, and because the final assembly, at which the RBA surprisingly left the important thing rate of interest unchanged, most analysts (together with myself) have additionally been anticipating a transfer in August, Commerzbank’s FX analyst Volkmar Baur notes.
Labour market stays tight
“Nevertheless, one shouldn’t be too sure. At the very least, that was the message from RBA Governor Bullock on Thursday. She reiterated what the RBA had clearly acknowledged within the minutes of its final assembly: that the RBA will proceed very cautiously on this cycle of price cuts. A reduce in August is due to this fact not a foregone conclusion. Along with the assertion that the RBA intends to proceed cautiously on this cycle, there have been additionally three issues that it mentioned it might pay explicit consideration to earlier than the subsequent assembly in an effort to decide on an additional reduce. Along with the worldwide setting, inflation and the labour market have been explicitly talked about.”
“Wanting on the worldwide setting, it appears honest to say that uncertainties are declining. It seems that the 1 August deadline for the brand new tariffs won’t be postponed once more. Australia has not but obtained a letter, however the tariff price for Australian exports to the US ought to be clear subsequent week. And the market appears to be taking all this in its stride up to now. This may due to this fact make a reduce much less possible. The labour market report for June, which was printed round every week after the final RBA assembly, was quite weak. All in all, the labour market stays tight.”
“Inflation stays. Right here, the main focus is especially on the quarterly figures, as these will present the total image of inflation from April to June. Month-to-month indications for April and Could are already accessible and level to a continued decline. Nevertheless, the total image is just printed each three months. This time, there are speculations that the housing part within the month-to-month figures could have not too long ago dampened the inflation image, that means that inflation for the second quarter may very well be larger than the month-to-month figures counsel. If that is certainly the case, the market must rethink its assumption behind the important thing rate of interest reduce in three weeks. This may assist the AUD once more within the brief time period.”
