RBA subtly joins the dovish chorus - UBS

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 2, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Córdoba) - The Reserve Bank of Australia (RBA) held the cash rate unchanged at 2%, as expected. According to the UBS team, the statement was more dovish although the change on the RBA language has been more subtle than other banks. After the decision, UBS retains its bearish stance on AUD/USD targeting 0.65 on a six and 12-month basis.

    Key Quotes

    “Its comments in the accompanying statement had few surprises, although inflation and domestic demand were the clear touch points for Governor Glenn Stevens. By nature, we saw the statement as destined to sound more dovish given how global sentiment has evolved so far this year, mostly due to the recent equity market selloff, and softer activity data from China. The RBA now recognizes the global economy is more-than likely to expand ‘at a slower pace than earlier expected’."

    “While many central banks have used January meetings to signal or reinforce further easing measures, the RBA was far more cautious in its tone and changes to the RBA's language far more subtle. For example, the RBA now says ‘Continued low inflation may provide scope for easier policy, should that be appropriate to lend support to demand,’ whereas the December statement indicated ‘the outlook for inflation may afford scope for further easing of policy’.”

    “The RBA seemed happy with domestic conditions, identifying: business indicators (ex-mining) as moving to above-average, solid employment growth, domestic demand largely resilient and a cooling of Sydney and Melbourne housing markets. Also, the RBA saw the path of the exchange rate as in line with the evolving economic outlook. Inflation will be a clear sticking point for the RBA; we anticipate revisions to the forecasts in the 5 February Statement on Monetary Policy. Adding to this, recent jobs reports have run ahead of other indicators, hence we expect some catch-up and that unemployment will rise modestly in coming months.”

    “The AUD/USD spiked immediately following the decision, but has since bled lower to 0.705. We retain our bearish stance on AUDUSD targeting 0.65 on a six and 12-month basis.”
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