Australian Markets Weekly – 26 April 2016

Tomorrow’s CPI will be another low print but unlikely to sway the RBA into easing monetary policy given the continued resilience in the non-mining economy. NAB’s forecast for the March quarter CPI is for Australia’s official inflation rate to be 1.6% y/y (after 1.7% in Q4), the sixth quarter below the 2-3% official RBA target range.

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A low CPI unlikely to sway the RBA; AUD valuation update: Dizzying Heights

  • Tomorrow’s CPI will be another low print but unlikely to sway the RBA into easing monetary policy given the continued resilience in the non-mining economy. NAB’s forecast for the March quarter CPI is for Australia’s official inflation rate to be 1.6% y/y (after 1.7% in Q4), the sixth quarter below the 2-3% official RBA target range.
  • NAB’s forecasts for the economy calls for a steady-to-lower trend rate of unemployment rate and a steady RBA this year.
  • In this Weekly, Rodrigo Catril, Currency Strategist, outlines how we could be entering a new period of significant overvaluation for the AUD by replicating the RBA’s medium-term model of the real exchange rate. Already the RBA has spoken about how “an appreciating exchange rate could complicate progress” in the economy’s transition.
  • While the RBA is watching developments closely, an overvalued currency on its own is unlikely to instigate the RBA to ease. The Bank would need to see evidence of a likely deterioration in economic activity (probably through their business liaison program) as a prerequisite to ease again.

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