FXstreet.com (Barcelona) - While acknowledging its a close call, Rob Henderson, Chief Economist at NAB, still sees the balance of odds favouring a 25bps cut by the RBA next week to 3%.
Mr. Henderson notes: "While iron ore prices have improved in the past month and coking coal prices have stabilised, both are still way down on a year ago. The terms of trade weakened further in the September quarter. Steel production in China has fallen further. If the RBA is serious about stimulating domestic activity to offset the coming pullback in mining investment, completing a 50bps cumulative move would be an appropriate policy step. To delay would probably foster a stronger currency ahead."
"If they do not cut next week, the RBA will likely be on hold until at least February, by which time they’ll have the Q4 CPI to released in late January as well as be able to assess how the rate cuts to date are affecting the economy. How far lower the cash rate goes will depend on commodity prices, the Australian dollar’s path, bank funding costs, activity indicators such as employment and may be limited by rising house prices and/or inflation" Rob adds.
Mr. Henderson notes: "While iron ore prices have improved in the past month and coking coal prices have stabilised, both are still way down on a year ago. The terms of trade weakened further in the September quarter. Steel production in China has fallen further. If the RBA is serious about stimulating domestic activity to offset the coming pullback in mining investment, completing a 50bps cumulative move would be an appropriate policy step. To delay would probably foster a stronger currency ahead."
"If they do not cut next week, the RBA will likely be on hold until at least February, by which time they’ll have the Q4 CPI to released in late January as well as be able to assess how the rate cuts to date are affecting the economy. How far lower the cash rate goes will depend on commodity prices, the Australian dollar’s path, bank funding costs, activity indicators such as employment and may be limited by rising house prices and/or inflation" Rob adds.
