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AUD: Australia CPI prints weak number, raises rate cut hopes - HSBC

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Oct 28, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Delhi) – Research Team at HSBC, note that the just released Australian CPI numbers paint a weak picture of economy which in turn means a cut is now likely by the RBA.

    Key Quotes

    “Today’s much lower-than-expected underlying inflation numbers are likely to force the RBA’s hand. The trimmed mean and weighted median both printed at a low q-o-q rate of 0.3% (well below the market’s call for 0.5% q-o-q). On a y-o-y basis, the trimmed mean was running at 2.1% (the market had 2.4%), while the weighted median was 2.2% y-o-y (the market had 2.5%).”

    “The numbers are likely to have surprised the RBA to the downside. The last set of published forecasts from the RBA showed that it expected underlying inflation to pick up to 2.5% y-o-y by Q4. This now seems unlikely.”

    “The recent lift in mortgage rates by Australia’s four major banks, in response to higher regulatory capital requirements, has also tightened local financial conditions. The average lift in the variable mortgage rate was 17.5bp. This, alone, was unlikely to see the RBA consider cutting its cash rate, given concerns about rising risks in the property market. However, when combined with the downside surprise to inflation, the RBA now has multiple reasons to consider a cut.”

    “Clearly, tomorrow morning’s Federal Reserve meeting will be closely watched and could have a bearing on the RBA’s decision. Fundamentally, however, it will remain hard for the RBA to argue against a cut when underlying inflation has fallen as much as it has and is now below the target band over the past six months.”

    “We now expect the RBA to cut its cash rate by a further 25bp in Q4 (previously we expected the RBA to remain on hold), with a cut at the November meeting most likely.”
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