RBA: More rate cuts to come? - Westpac

Sean Callow, analyst at Westpac, points out that the RBA’s cash rate cut to a record low 1.0% was clearly flagged by Governor Lowe beforehand and in the statement and subsequent speech, Lowe reiterated that the rationale for cutting at consecutive meetings was not a deteriorating growth outlook but a desire to drive the unemployment rate lower.

Key Quotes

“But is there more to come? The statement repeated June’s final paragraph, with the eye-catching exception of saying further adjustment would occur “if needed”. It seems the RBA will make limited changes to its key forecasts in the August quarterly statement. In the meantime, the RBA will no doubt be pleased to see agreement in Canberra this week to pass income tax cuts. This points to a period of steady rates.”

“However, the RBA will “continue to monitor developments in the labour market closely” and we expect they will see some softening in jobs growth and higher unemployment.”

“Our base case is another cut in Nov 2019, to 0.75%. But we also expect the Fed to have cut the funds rate 25bp by then, keeping the AUUS cash spread steady. After that, further Fed easing will trim the discount on the AU cash rate. Markets lean towards yields moving back in AU’s favour next year.”

“In the week ahead though, whether AUD/USD can extend its recovery to 0.71+ probably depends most on Jay Powell.”