FXStreet (Guatemala) – Jane Foley, Senior Currency Strategist at Rabobank, explained that the market consensus is strongly in favour of steady rates from the RBA.
Key Quotes:
“…though the small minority that is forecasting a 25 bps rate cut hints at the importance of this week policy meeting as a gauge to the likelihood of further easing from the RBA.”
“This week’s RBA decision comes against the backdrop of intense concerns about Chinese growth projections and increased volatility in iron ore and coal prices. A glut of supply combined with concerns about Chinese growth has combined to recently take prices of both commodities to 10 year lows. Having enjoyed a brief surge last week, the price of iron ore has slipped again today on the back of soft Chinese PMI data.”
“While the weakness in the prices for Australia’s largest commodity exports threatens to flow back to Australia in the form of reduced incomes and potentially increased unemployment, the jobs market to date has remained robust.”
“In a speech in late July, RBA Governor Stevens pointed to subdued growth in domestic demand on the back of the fall in resource sector capital spending but remarked that in response households has reduced their savings ratios – but only to ‘normal’ levels.”
“While surging property prices in some part of the country have underpinned the argument that the RBA may be unwilling to cut rates again for fear of stimulating household debt levels, Stevens remarked that while some households were taking on more leverage (first time home buyers among them), many others were taking advantage of lower rates to reduce their outstanding borrowing.”
“Consequently he remarked that “the pace of lending to households remains moderate”. Even though data released overnight showed a mammoth 18.4 y/y surge in Sydney house prices, we would view Steven’s statement on household borrowing an indication that the RBA are pre-disposed to cutting rates again.”
(Market News Provided by FXstreet)