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AUD: Not a rate cut trigger - ANZ

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Apr 4, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Research Team at ANZ, suggests that the RBA board meeting tomorrow will be the main focus this week.

    Key Quotes

    “We (and the market) are expecting rates to remain on hold at 2% as global and domestic economic conditions have recently been tracking reasonably well. However, we will be particularly interested in any change to the Bank’s comments around the AUD.

    In the previous Board Meeting minutes, there was scant commentary around the currency other than to note that the non-mining sectors had been supported by the depreciation of the exchange rate over the past couple of years. However, the currency was trading around USD71.5 at the time of the previous meeting, but is now hovering around USD76. We therefore think that a tweak to the commentary on the AUD in this week’s post-meeting statement is possible.

    We expect that the Bank would not be comfortable with this level of the exchange rate and would much prefer to see the AUD closer to the mid-60s. However, we do not see the RBA cutting rates in a mechanical response to the stronger AUD.

    The Bank is much more likely to wait for evidence that a stronger currency is having a materially detrimental impact on the economy. If it becomes apparent that the strength in the AUD is feeding through into deteriorating business conditions, this would be a concern. So far we’ve seen business conditions moderate from a very high level, but they remain at elevated levels, suggesting that the recovery in the non-mining sector is continuing. Moreover, we still think that the depreciation cycle in the AUD is not yet over and this will provide a renewed kick for economic growth through 2017.”
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