Aussie dollar torn between RBA policy bets and risk appetite trends

Published at Oct 6, 2015, in Features

As the Reserve Bank convenes for its monthly interest rate decision, domestic monetary policy consideration will return to the spotlight.

It is expected that Reserve Bank Chairman Glenn Stevens will keep the baseline lending rate at 2% with most markets and economists agreeing that no change will occur.

Daily FX Currency Strategist Ilya Spivak says, “An outcome in line with the consensus will see traders combing the policy statement accompanying announcement for guidance on how things ought to evolve going forward. Scheduled commentary from RBA Assistant Governor Guy Debelle and outlook.”

Spivak says that the markets are pricing in at least one cut over the coming 12 months.

“Australian economic news flow has increasingly deteriorated relative to consensus forecasts since the last policy meeting in early September. Survey-based 2015-17 GDP growth forecasts and priced-in medium term inflation expectations derived from bond yields have dropped over the same period. This opens the door for a dovish shift in RBA rhetoric to weigh on the Aussie.”

Meanwhile the return of homegrown catalysts will not be accompanies by a slowdown in external event risk.

“The US Federal Reserve and the ECB will both release minutes from their latest policy meetings. Traders will dutifully scour both releases to gauge the degree of concern about global growth dynamic policymakers.”

Yann Quelenn, Market Analyst, Swissquote agrees with Spivak’s sentiment. She says, “Markets are currently pricing in a 90% probability that the rates are going to be unchanged. However, there is a decent likelihood, estimated at 40%, that a rate cut will happen by next year.

“The fundamentals are improving. Inflation data, released this morning from the institution TD Securities, increased in September by 0.3%m/m. The annualised figure has increased also toward by 2% year-on-year. The Australian dollar has devalued and remains currently very low, which has taken some of the pressure off the country by boosted exports. Nevertheless, one of the major partners for commodities is China and the lingering weak commodity prices are weighing on the Australian growth. In particular, the mining industry is suffering and investments have declined sharply. It seems that the positive effects of a weak currency are not offsetting the growth deceleration due to negative world market conditions.

Spivak says cross-market trading patterns following last week’s dismal US employment report suggest dovish rhetoric may prove supportive for risk appetite, offering support for the sentiment-linked Australian currency.

S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

Conflict of Interest Notice

S3 Consortium Pty Ltd does and seeks to do business with companies featured in its articles. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this article. Investors should consider this article as only a single factor in making any investment decision. The publishers of this article also wish to disclose that they may hold this stock in their portfolios and that any decision to purchase this stock should be done so after the purchaser has made their own inquires as to the validity of any information in this article.

Publishers Notice

The information contained in this article is current at the finalised date. The information contained in this article is based on sources reasonably considered to be reliable by S3 Consortium Pty Ltd, and available in the public domain. No “insider information” is ever sourced, disclosed or used by S3 Consortium.

Facebook
Twitter
LinkedIn