Australian Markets Weekly – 11 April 2016

RBA more open to the need to cut again but for now the reasons aren’t sufficient.

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RBA open to cut, but not currently justified by the data; budget will need to deliver restraint

  • The RBA has less comfort with monetary settings than it did at the end of 2015. Board meetings in the months ahead are live but to prompt a near-term cut we’d likely need to see: 1) a very low Q1 CPI print; 2) softer activity data; and 3) sustained and unwarranted $A strength. Possible, but unlikely for now.
  • The Commonwealth’s debt load is pushing against rating agencies’ AAA boundary. To keep ratings agencies comfortable, the May 3 Commonwealth budget will need to show ongoing fiscal restraint. This suggests fiscal policy may remain a modest headwind.

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