RBA could cut rates further next week – BTMU

Derek Halpenny, Eurpean Head of GMR at BTMU, sees the likeliness that the RBA could lower its benchmark rate by 25 bp at its meeting next week.

Key Quotes

“The probability of the RBA cutting rates on 2nd August have declined a touch after the Q2 inflation data showed a slightly higher trimmed mean rate, which remained at 1.7% rather than falling to 1.5%. The overall CPI reading was a little weaker while the weighted mean rate was in line with expectations. So it remains a very close call at this stage on whether the RBA will act next week. We just about lean in favour of a 25bp cut given the data will not alleviate low inflation concerns within the RBA”.

“The 2-year yield and the 3-month OIS both increased by a few basis points but still imply a greater than 50-50 chance of a rate cut next week. That perhaps is one factor undermining AUD/USD – the data has certainly not shifted expectations greatly that the RBA will ease. Furthermore, on a relative basis, like with EUR/USD – the 2-year spread with the US has seen the premium in favour of Australia falling to a new low this month as yields in the US pick up again and the spread is consistent with AUD/USD closer to 0.7000 rather than 0.7500”.