How to trade the RBA decision: BoA, Barclays, RBS, BNPP, Credit Agricole

Discussion in 'Fundamental Analysis' started by ForexLive, Apr 5, 2016.

  1. ForexLive

    ForexLive Forum Member

    Sep 2, 2015
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    The Reserve Bank of Australia decision is due at 0430GMT (5 April 2016) - here's a trading preview via eFX . However, Governor Stevens' adherence to the benefits of maintaining a steady policy stance is coming under increasing pressure from factors largely out of his control as he runs down the clock on the last 6 months of his tenure.The Bank has been more open to acknowledging downside risks in China in recent months, The dovish stance from the Fed adds another challenge to policy management on top of the extended move into negative rates territory in Europe and Japan. The current RBA cash rate of 2.0% looks increasingly attractive for investors on a relative basis. The AUD has gained almost 13% from January lows against the USD or nearly 8% on a TWI basis. The current TWI level of 64.2 is 3.5% above the level assumed in the economic forecasts presented in the February Statement on Monetary Policy (SMP). The Bank will have the next quarterly inflation data (due 27th April) and will update forecasts at the board meeting scheduled for 3rd May So far, RBA officials have used mild language to address the issue. Stevens suggested that the AUD rise "may be getting a bit ahead of itself" a week ago while other officials have expressed a preference for a "slightly lower" AUD. "The exchange rate has been adjusting to the evolving economic outlook." The risk is for some stronger language on the currency or in terms of the easing bias.The RBA meets on Tuesday, and we and consensus expect it to stand pat in April. Q1 GDP has come in at a solid 0.6 q/q, and there has been no significant deterioration in domestic data since the March meeting. However, the trade-weighted AUD has appreciated near 5% since end-February, and commodity prices have also rallied sharply (Figure 8).Considering that the AUD has moved alongside a rebound in commodity prices - implying that exchange rate valuation based on the RBA model may not have becom e overly misaligned even a fter the recent moves - and heightened attention on the RBA's rhetoric following the US Treasury's criticism of bank's "jawboning," we do not think that RBA will make significant adjustments to the statement on the excha nge rate this time. With soft wage growth and low inflation, we think the RBA will likely retain an easing bias, reiterating that "continued low inflation would provide scope for easier policy, should that be appropriate."considering that the continued softening of consumer and business confidence in New Zealand as indicated by recent sentiment surveys suggests that the RBNZ is likely to be more uneasy about currency strength than the RBA.The RBA holds its April policy meeting tomorrow andThe next decision, in early May, is due alongside the latest Statement on Monetary Policy, which includes updated growth and inflation forecasts. The RBA will also receive updated CPI inflation figures for the first quarter in mid-April, and the 2016 Federal Budget is due to be presented on May 3rd - the day of the May decision. With these major events upcoming in late April / early May,But we see a risk that the RBA signals that the inflation profile, which already (in the words of the RBA) would provide scope for easier policy, may be subject to new downside risks if the currency's strength is sustained.The RBA holds a policy meeting tomorrow and while they have not taken recent opportunities to talk down the AUD, which would likely prompt the market to bring forward rate cut expectations (a full cut is priced only by the November meeting).We continue to see the AUD as overvalued on our short- and medium-term valuation metrics (STEER and CLEER) and.The AUD has been among the strongest G10 FX currencies during the last few weeks. This was mainly due to a combination of better risk sentiment, stabilising commodity prices and improving growth conditions.Looking ahead, investors' focus turns to this week's RBA monetary policy announcement. In line with market expectations . Not long ago he stressed that the AUD may be getting ahead of itself. Considering that the currency has been appreciating further of late a more aggressive rhetoric may be required, especially when considering that growth momentum has failed to improve of late.

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