3 Feb 2015
AUD/USD: Will the bank cut rates?
FXStreet (Guatemala) - The AUD/USD is the one to watch today, with the RBA meeting fast approaching and there being a great amount of hype around the event.
We will see whether the hype has been built up too much though and should there be a divergence away from the general expectations of a rate cut or at least a change in language in respect to the long standing statement of, "The most prudent course was likely to be a period of stability in interest rates", we will likely see a correction in the currency.
The Major commodity pair has fallen from 0.8256 this year down to test the region of 0.7720's and teens. Commodity prices have been soft weighing on the economy and subsequent growth prospects, and a rate cut there could be supportive in this environment.
However, regardless of the decision this time around, if we cast our minds back to the December meeting where the bank felt that inflation was in line with target, the continuous jawboning in such comments as, “A lower exchange rate is likely to be needed to achieve balanced growth in the economy", is likely to be maintained and will continue to pressure the currency.
Since that December meeting, there have been a number of disappointments, such as 3Q14 GDP coming in lower than expectations at 0.3% QoQ versus 0.7% predicted with weaker consumer spending and confidence numbers as well as sub-consensus inflation (4Q14 CPI at 1.7% YoY versus 2.3% in 3Q14), all noted by analysts at ING Bank. " We also think the balance of risks favour looser monetary policy. With the plunge in energy prices pulling consumer price inflation lower across the world we expect Australian CPI to follow suit."
We will see whether the hype has been built up too much though and should there be a divergence away from the general expectations of a rate cut or at least a change in language in respect to the long standing statement of, "The most prudent course was likely to be a period of stability in interest rates", we will likely see a correction in the currency.
The Major commodity pair has fallen from 0.8256 this year down to test the region of 0.7720's and teens. Commodity prices have been soft weighing on the economy and subsequent growth prospects, and a rate cut there could be supportive in this environment.
However, regardless of the decision this time around, if we cast our minds back to the December meeting where the bank felt that inflation was in line with target, the continuous jawboning in such comments as, “A lower exchange rate is likely to be needed to achieve balanced growth in the economy", is likely to be maintained and will continue to pressure the currency.
Since that December meeting, there have been a number of disappointments, such as 3Q14 GDP coming in lower than expectations at 0.3% QoQ versus 0.7% predicted with weaker consumer spending and confidence numbers as well as sub-consensus inflation (4Q14 CPI at 1.7% YoY versus 2.3% in 3Q14), all noted by analysts at ING Bank. " We also think the balance of risks favour looser monetary policy. With the plunge in energy prices pulling consumer price inflation lower across the world we expect Australian CPI to follow suit."