FXStreet (Córdoba) – The UBS analysts notes that while most economists acknowledge the existence of a “soft easing bias,” and the majority still believe a cash rate of 2% will mark the bottom of the cycle, UBS thinks the risks to this view have increased and warns against complacency.
Key Quotes
“We do not expect any adjustment, following the 25bps cut to the cash rate last month to a new record low of 2%. At the time, we said it was a wasted cut; the AUD jumped at the removal of the explicit easing bias, while attempts to talk the currency down fell on deaf ears”.
“Since then, the RBA has painstakingly sought to reassert its stance of ‘wait and see’ with a ‘soft easing bias’. First, the minutes of the May meeting explained that a lack of guidance was consistent with usual practice following a rate change decision; second, it clarified that board members did not see the lack of guidance as ‘limiting the board’s scope for any action that might be appropriate at future meetings’. Assistant Governor Guy Debelle has reinforced this sentiment at a recent event, and we believe the RBA’s June post-meeting statement will come with stronger words to communicate this.”
“Nevertheless, while most economists acknowledge the existence of a ‘soft easing bias’, the majority still believe a cash rate of 2% will mark the bottom of the cycle. We think the risks to this view have increased and warn against complacency”.
“The latest ABS capex-intentions survey has raised the specter of uncertainty, pointing to an 18% year-on-year decline in 2015/16, the worst on record. We now focus on 2Q15 CPI and household expenditure growth as crucial signals of a further RBA cut. Any prolonged slowdown in consumer spending would certainly dampen a recovery in non-mining investment, in our view. We reiterate our six- and 12-month call for the AUD to reach USD 0.70”.
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