“The statement is likely to conclude with a mild easing bias. Indeed a small tweak of the words used in May could convey that. One possibility would be: ‘the Board views the inflation outlook as providing an opportunity for monetary policy to be eased further, if required to reinforce recent encouraging trends in household demand.’
“With the RBA likely to be, in our view, on hold at 2.00% for some considerable time and market pricing for the cash rate having now moved some way from the ~1.6% low; we think future moves in the Australian / US front-end interest rate differential are more likely to be driven by the ‘US-side’ of the equation”.
“As the final chart on the right shows, there has been a fairly tight relationship between the front-end interest rate differential and AUD/USD over the past year or so. That said, AUD/USD now looks a little low versus the interest rate differential”.
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