RBA Preview: Forecasts from nine major banks, general dovish sense to be an AUD bearish trigger

The Reserve Bank of Australia will unveil its latest decision on monetary policy on Tuesday, July 6, followed by a press conference from Governor Philip Lowe. As we get closer to the release time, here are the forecasts by the economists and researchers of nine major banks regarding the upcoming central bank's decision. The RBA will likely be more conservative than previously although there’s no clear indication on how conservative Australian policymakers will be.

As FXStreet’s Chief Analyst Valeria Bednarik notes, the AUD/USD pair is technically bearish in the long-term heading into the event.

TDS

“Aside from the Bank expected to announce the cash rate remaining at 10bps, the interest on ESA balances remaining at 0% and an official announcement that the Term Funding Facility has ended, the focus will be on the Yield Curve Control Target Bond, the Bank's forward guidance and the form that the next likely round of QE is likely to take. In light of the recent lockdowns, there is a lower chance the RBA announces an AUD50 B QE program. And while there is scope for the Bank to provide more than AUD100 B in QE over a longer time frame, we see little reason for the RBA to announce as large a program given the RBA likely views prior QE programs as more successful than they had initially expected (considering the real TWI is below model estimates).”

Westpac

“With the economy having recovered much faster than the Bank’s expectations in the November Statement on Monetary Policy, it seems reasonable that the Board will decide not to extend the 'yield target bond' to the November 2024 bond. We expect that the Board will decide to take a more flexible approach to its bond-buying program than we have seen in the past. We think the Board will be committed to maintaining the current pace of purchases (AUD5 B per week) until late in the year (around the December Board meeting).”

Standard Chartered

“We expect the RBA to continue QE further, but move to an open-ended purchase programme (from the current target of AUD100 B per programme) at a slower pace of AUD4 B/week (from the current AUD5 B/week). At its current pace, the RBA would own c.45% of eligible bonds outstanding by end-2021; a slower pace would support the longevity of the programme. We expect the RBA to regularly review its QE programme, likely tapering purchases further if the domestic recovery continues. We have maintained our forecast, since February this year, that the RBA will keep the April 2024 bond as its target for purchases, and not shift to the November 2024 bond; market expectations have aligned with our view. Gov. Lowe highlighted four options that the RBA board has considered on QE extension – (1) stop QE; (2) continue at the same pace of purchases for the same amount; (3) reduce purchases, moving to a smaller total amount or a slower pace of purchases; (4) review the pace of purchases more frequently. Of the four, the board ruled out only the first option. We believe the RBA will opt for a mix of the third and fourth options. The current spike in new COVID-19 infections in several cities is likely to concern the RBA; a sustained increase could lead to further lockdowns, impacting sentiment and activity. Australia’s vaccination rate is significantly below G7 peers’, amplifying the risk posed by new infections. As of end-June, less than 25% of the population had received at least one vaccine dose, and less than 6% were fully vaccinated.”

ANZ

“We expect the following policy outcomes: The 3y yield target (YT) will be held at the Apr-24 ACGB, rather than rolled to the next bond (the Nov-24). A flexible QE approach will be adopted, with weekly purchases of AUD5 B per week, with a reassessment later in the year. The RBA will also be digesting the strong housing data released this week. We continue to expect macroprudential policies to be implemented before year-end. Indeed, an informal tightening is already underway.”

ING

“There are four main options for the Bank as it is set to re-adjust its quantitative easing: 1) ceasing asset purchases, 2) repeating A$100 bn asset purchase scheme for six months and then reviewing 3) conducting a smaller amount (like AUD50 B) of purchases for six months and then reviewing 4) repeating AUD100 B for a longer period than six months. We expect the RBA to go for the second option, which would allow them to steer away from the tapering narrative while adopting a more data-dependent approach. If anything, we see option three as the second most likely, although that would likely be seen by markets as a hawkish shift. We think market pricing is standing somewhere between option two and three, which means that if our base case materialises (AUD100 B for six months) the impact on the Australian dollar could be negative. More crucially, we think the RBA will not follow other developed central banks in signalling a rate hike in 2022, and markets may be forced to re-price some of their hawkish expectations, which could also put pressure on AUD.”  

MUFG

“The deterioration in sentiment towards the AUD has been reinforced as well by building evidence of a loss of growth momentum in China and re-tightening of COVID-19 restrictions in Australia as the new Delta variant has resulted in new cases picking up to the highest level since last summer, although they remain relatively low. We do not expect the developments to materially dampen the RBA’s outlook for robust growth this year of 4.75% especially after stronger growth in Q1. The RBA has already signalled that it is unlikely to roll forward their three-year yield target from the April 2024 to the November 2024 bond at next week’s policy meeting. The RBA will also lay out their latest QE plans with the current AUD100 B tranche set to end in September. We expect QE purchases to be extended into next year initially at the current pace of AUD5 B/week but the pace will be made more flexible and conditional on evolving economic conditions.”

SocGen

“The RBA should taper asset purchases but will try not to sound even the tiniest bit hawkish. The AUD is undervalued, because monetary policy is too easy, and neither of those things is changing soon.”

NAB

“The RBA remains skeptical on the outlook for wages, despite the jobless rate declining. The RBA could therefore seek to sound more dovish next Tuesday, in order to push back against the market pricing of a winding back of easing. Dovish tones could be evident at the July Board Meeting even as the RBA does not roll its 3yr YCC target and as QE is tapered. A re-statement of the conditions for a rate hike being not likely until at least 2024 would be one way to push back on market pricing. Not tapering QE with a defined program length would be another.”

UOB

“All eyes will be on the meeting, which will be accompanied by a press conference. We now expect the RBA will moderately taper its QE program by announcing a further AUD75 B program once the current AUD100 B tranche of buying ends in September. It now seems clear that the RBA has no intention of extending the Yield Curve Target (YCT) bond from April 2024 to November 2024. We also expect that the TFF would not be extended.”