RBA to keep rates on hold today - Barclays

The Barclays Research Team offers a brief preview on what to expect from the Reserve Bank of Australia (RBA) as well as from the Reserve Bank of New Zealand (RBNZ) monetary policy decision due out today and on Thursday respectively.

Key Quotes:

“RBA and RBNZ to remain on hold.

Both central banks continue to adopt a more dovish stance than their G10 counterparts. Most G10 central banks have either reduced monetary policy accommodation or provided forward guidance.

The RBA and RBNZ have been far more dovish, with their policy rates at historically low levels.

While we expect the RBA to raise its policy rate from February next year, informed by its stated preference to hike, the central bank's guidance on the timing of the next move has not been clear, and the market is pricing less than 10bp over the next year. 

Dovish monetary policy facilitates FX weakness. The antipodeans, previously viewed as "G10 carry currencies", now have lower policy rates than the Fed as it continues to raise rates. 

Stubborn wage growth mars an otherwise positive domestic economic backdrop.

Inflation in Australia and New Zealand has been lackluster, even as growth has been healthy and employment steadily rising.

Low inflation may be due to stubbornly low wages, which the RBA and RBNZ have made reference to in recent months. 

However, wage growth appears to have bottomed out in Australia.

The Antipodeans are also more externally vulnerable. …  Australia and New Zealand export far more to China than the US, as the Asian giant grapples with risks to growth from deleveraging and the implementation of trade barriers.

It is fitting that AUD and NZD have fared poorly during the current phase of CNY weakness, with Australia's economy particularly vulnerable among G10 to the implementation of trade barriers between the US and China.”