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.

For full analysis, download report

• Australian Markets Weekly:  26 April 2016 (PDF, 3338KB)

For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets

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