November 5, 2018
Australian Markets Weekly – Statement of Monetary Policy preview
This week, we take a closer look into how the RBA forecasts might be evolving, including from still upbeat recent data but still nagging concerns about the outlook.
- The RBA is odds on to leave the cash rate unchanged tomorrow and also leave the final paragraph policy outlook unaltered in tomorrow’s post-Board Media Release. But there will be some likely clues about their forecasts that will be revealed in Friday’s quarterly Statement on Monetary Policy.
- NAB expects recent positive data surprises to be reflected in some near-term revisions to the RBA’s forecasts. However, further out, the Bank is unlikely to make much change to its outlook.
- The RBA’s unemployment rate forecast is of particular interest, given the recent fall to 5%. Note, on a quarterly basis, unemployment was 5.2% in Q3 – this will be the Bank’s starting point for its forecasts, not 5%. We therefore expect to see an unemployment rate estimate of 5¼% for December 2018, and bring forward when the unemployment rate hits 5% to late 2019. We’ll be interested to see whether the Bank forecasts a fall in the unemployment rate to or below the NAIRU, which it estimates to be around 5%.
- In contrast, only minor near-term changes to GDP forecasts are expected, while the inflation track is likely to be unchanged – given recent data has been bang-on the RBA’s forecasts.
- The AUD opens the week just under 0.72, pushed back in the aftermath of a strong US payrolls report supporting the USD. Even so, at 0.72, it’s up around one cent on the week, aided by still very short positions in the AUD (and NZD), hopes of a US-China trade deal that has also supported Chinese markets. The Chinese yuan has also ended the week on a stronger note, supporting the AUD.
- For the week ahead, it’s also a week of other central bank meetings. After the RBA tomorrow is the Fed early Thursday morning APAC time, followed that morning with the RBNZ outcome. No changes are expected. Friday’s Payrolls increase the chances further of the Fed again increasing the Fed funds rate another 25 bps, taking the target to 2.25-2.50%.
- Elsewhere offshore, China’s President Xi Jinping addresses this week’s China Import Export Expo as a scene setter from the Chinese standpoint on current trade tensions. In that context, the US have their mid-term elections tomorrow with the results known through Wednesday APAC time. The polls point to the Democrats gaining control of the House, but not the Senate with only nine of the 35 Senate seats up for re-election held by Republicans. The markets will be alert to any changes in trade tension rhetoric after the elections.
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