Australia: Rates likely to be on hold for a very, very long time – Westpac

Analysts at Westpac, point out that the main focus in Australia last week was CPI and the run of seven weaker than expected inflation outcomes certainly adds to the case for rates being on hold for a very, very long time.

Key Quotes

“With CPI now behind us, the focus turns to building approvals Tuesday, the PMI Wednesday, trade data Thursday and retail sales Friday. Retail sales will be the main focus, and while we are likely to see mixed conditions in June, we should see a better outcome for real sales for Q2 after a weak Q1. The rise in coal volumes and prices in June should underscore a pick-up in value of Australian commodity exports and we could see A$1.1bn trade surplus.”

“Iron ore prices have pushed above $67, a high back to May, supported by a very sharp drop in Chinese domestic production. The Chinese authorities are acutely focussed on improving air quality and lower quality iron ore mines have been shuttered to support this drive. Data released this week confirmed that domestic production has hit lows back to 2008.”

“Westpac is sticking to the view that the A$ should remain closely tethered to 0.74 into the end of this year. However, with the Fed set to raise a total of 4 times by mid next year according to Westpac Economics; no change from the RBA and iron ore export volumes set to rise into 2019 dragging prices lower, the case for a weaker AUD at least on forecast remains clear.”