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Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities, points out that the RBA Gov’s speech to the Armidale Business Chamber did not cement a 25bps cut next week and suggests that TD believes that the Bank is likely to ease at the meeting.

Key Quotes

“The RBA’s Aug SoMP technical assumptions assumed the cash rate moves in-line with market pricing and the Aug RBA Minutes noted “A 25 basis points reduction had been fully priced in by November 2019″.”

“Q2’19 GDP at +0.5%/q missed the RBA’s +0.75%/q forecast and the RBA Gov noted in his Armidale address “we did not expect this slowdown, so it has come as a bit of a surprise”. This miss means the RBA is already playing catch up to achieve its late 2019/2020 GDP forecasts that assume a 25bps Nov cut is delivered.”

“Markets are pricing ~ a 75% chance to a 25bps RBA cut next week, the bulk of the analyst community has moved forward the Nov cut to Oct and the RBA’s Sep Minutes removed any reference to “the accumulation of additional evidence” for it to cut that had appeared in the Aug Minutes. With the RBA playing catch-up to its GDP f/c’s and wages growth looks to have stalled, there is little reason for the RBA to wait to Nov to cut.”