RBA to hike gradually but likely to keep patience for now - TDS
|Annette Beacher, Chief Asia-Pacific Macro Strategist at TDS, suggests that they are updating their RBA call in the wake of today's Dec qtr Wage Cost Index report and while wages growth did not disappoint, ticking higher to 2.1%/y, the sluggish pickup combined with lower-than-they-expected underlying inflation and a patient RBA has spurred us to drop our long-held May hike, but leave in place our November +25bp hike, for a year-end cash rate of 1.75%.
Key Quotes
“The debate of central bank should vs will begin policy normalisation is never far away: our preference is to remain at the hawkish end of the analyst spectrum, but unfortunately, the RBA has emerged from its long summer hiatus pushing the 'gradual' theme, and we have to listen.”
“Even with our new less-hawkish view, OIS still appears to be asleep at the wheel. Current pricing is 58% for our November hike base case, and the first full +25bp is not fully priced until February 2019.”
“We continue to hold a defensive stance on AUD, given that the hurdle for a near-term rate hike by the RBA is higher. AUDUSD supports are located near $US0.7750, and 1.06 in AUDNZD.”
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