Australia’s CPI data may decide the fate of local interest rates

In typical RBA fashion, the bank didn’t give much away in its meeting minutes from earlier this month. The reaction to today’s minutes suggests that the market was looking for more of a dovish tone from the bank. Instead, the minutes indicate that the board remains in wait and see mode. The bank acknowledged that growth is expected to remain slightly below trend, although the depreciation of the Australian dollar should help to support the economy. At the same time the board is waiting to assess the full impact of prior rate cuts on the economy.

Since the bank last met there has been some disappointing economic data, including a jump in unemployment and abysmal business conditions figures, which may be enough to push the RBA to cut the official cash rate in August. However, the bank has remained stoic in light of similar data disappointments in the past.

CPI data could push the RBA in either direction

As was the case earlier this year, it may all come down to CPI data released next week. Inflation is currently around the middle of the RBA’s target range (amongst other measures, the bank uses a mix of trimmed mean and weighted median CPI data to determine its inflation figure), thus a significant move in either direction could push the RBA in one direction or another.

On balance, with mining investment likely to taper off later this year and limited signs of life from non-mining parts of the economy, we think there is scope for another rate cut in Australia. Whatever the bank’s decision, it’s going to be a very close call. Current inter-bank pricing puts the chance of a 25 bps rate cut at just over 50%, from around 65% prior to the release of the RBA’s meeting minutes.

The Aussie

AUDUSD jumped on the back of the bank’s meeting minutes, albeit not by much. From here the pair may be set to test critical near-term trend line resistance (see chart). A failure to push through this level may see the pair retest a psychological support zone around 0.9000. A confirmed break there could send the pair towards long-term support around 0.8550 – 50.0% retracement level from 2008 lows.

Источник: Forex.com

16.07.2013