RBA to reintroduce strategy of 'talking down' the Aussie? - Westpac

Bill Evans, Chief Economist at Westpac, expects that the RBA Board will decide to hold rates steady today, although he notes that the Governor will certainly discuss reintroducing the strategy of “talking down” the AUD.

Key Quotes

"It remains our long held view that the RBA will keep rates on hold for the remainder of 2016. Steady rates will come as no surprise to markets with the probability of a move that is priced into the curve running at just around 5%."

"We have consistently argued that any move from here, at these low rate levels, is only likely to occur at the February, May, August, and November meetings. Those meetings precede the quarterly Statement on Monetary Policy when the Bank can release revised forecasts which are likely to be used to justify any move."

"Market probabilities for the next “live” month, May, are only around 25%. A complication for the meeting in May is that it will now coincide with the release of the Federal Budget rather than precede the Budget by one week. The market based probability of a cut by June has moved to 40% with a 100% probability of a cut priced in for December."

"By far the most important issue around the announcement will be whether the Governor decides to strengthen his commentary around the Australian dollar. Since August last year the commentary has been along the lines of the March Statement “the exchange rate has been adjusting to the evolving economic outlook”."

"Given there was little change between July and August the decision to soften the language in August implies that consideration must have been given to softening the language around the AUD at the July meeting. The Bank was probably looking for some sign of stability before changing the message."

"The Governor will certainly discuss reintroducing the strategy of “talking down” the AUD. That would imply changing the language around the AUD from “adjusting to the evolving economic outlook” to something like “a lower AUD seems both likely and necessary”. Such a change in strategy around the AUD commentary would be very significant."