RBA is not complacent about AUD remaining weak – Westpac

Sean Callow, analyst at Westpac, points out that the RBA embraced the opportunity of the FOMC’s guidance of a sustained pause in rate-cutting to not only hold its cash rate steady at 0.75% but to make clear that it expects to hold again in December.

Key Quotes

“It was able to send such a message without much fear of a surge in the Aussie dollar, given that markets are pricing only a 10-15% chance of another Fed cut this year.”

“While AUD/USD did rise a little after the RBA statement, it is little changed over the week and in trade-weighted terms, remains as Governor Lowe put it, “is at the lower end of its range over recent times.” The benefits are evident in Australia’s trade position, with today’s Sep data bringing the 2019 monthly average surplus to A$6bn.”

“But the RBA is not complacent about AUD remaining weak. In retaining the pledge that it is “is prepared to ease monetary policy further if needed,” the RBA Board surely had the currency uppermost in mind. This pledge also raises questions about the durability of the unwinding of rate cut pricing – see chart across. Westpac continues to expect a cash rate cut to 0.5% in Feb 2020, at which point unconventional policy options should be a hot topic again.”

“Indeed even the week ahead could produce some wobbles for those who betting that the RBA is on hold for an extended period, with Oct unemployment and Q3 wages data due. This will be a test for AUD/USD which fell short of 0.6950 this week as the US dollar steadied with help from strong US data.”