RBA: Next move likely to up in the cash rate - Westpac

David Goodman, Research Analyst at Westpac, notes that the May RBA minutes repeated the mantra that the likely “next move in the cash rate would be up, rather than down” and introduced a new notion that holding the cash rate steady would provide “a source of stability and confidence”.

Key Quotes

“RBA’s Debelle spoke this week and highlighted the risk stemming from low wages growth. He acknowledged the apparent global flattening of Phillips curves, while locally the “majority of firms surveyed in the Bank's liaison program expect wages growth to remain broadly stable over the period ahead”. So long as this remains the case, it is hard to see where wages pressures will come from.”

“With Governor Lowe outlining the difficulty in achieving the Bank’s inflation target with wages growth of 2%, the WPI is shaping up as the key data series to watch.”

“Unchanged rates may indeed be a virtue, but as yield spreads continue to move decisively in USD’s favour, and the Australian economy struggles to generate either wage and inflation pressures or above trend growth, we are comfortable with our multi month bearish AUD/USD view. This should also cap near term rallies.”

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