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4 Mar 2014
Flash: RBA statement may have some dovish risks - RBS
FXStreet (Bali) - The most likely outcome from today's RBA monetary policy decision is no material change, although risk is that the RBA inserts some dovish sentences, notes Greg Gibbs, FX Strategist at RBS.
Key Quotes
The risk is that the RBA inserts some dovish sentences to acknowledge weaker non-resource business investment expectations and lower commodity prices. Anecdotes from the economy, including increasing concern over the pressure for industrial relations reform and less industry assistance from the government suggest the recent recovery in business confidence may not easily transition to higher business investment.
In the February statement the RBA shifted from an easing bias to a neutral bias. This reflected higher than expected inflation in Q4 and improvement in a range of activity indicators and sentiment surveys. The subsequent quarterly statement and policy minutes revealed an improved economic outlook, albeit one that still expected growth to be at best at trend in 2014 and unemployment that was expected to edge higher though much of the year before peaking. The assessment was consistent with a prolonged period of low rates, but that they were perhaps now low enough and might eventually be raised, most likely beyond the current year.
As such the RBA concluded in their February policy statement that, "On present indications, the most prudent course is likely to be a period of stability in interest rates."
The RBA policy statement does not need to change much from the February statement. In that statement it already acknowledged that, "with resources sector investment spending set to decline significantly, considerable structural change occurring and lingering uncertainty in some areas of the business community, near-term prospects for business investment remain subdued."
However, it could add emphasis that this is an issue by noting that recent improvement in business confidence has not helped lift surveyed expectations of capital expenditure in non-resources sectors.
The building blocks for Q4 GDP that is due for release on Wednesday have generally been weaker than expected, especially for capital expenditure. The RBA dropped its sentence in the February statement that the economy has been growing a bit below trend. It could again reinsert this message in light of the most recent indicators for Q4, particularly business investment.
The AUD was boosted after the February statement in part because the RBA dropped its view that it was "uncomfortably high" and replaced it with, "The exchange rate has declined further, which, if sustained, will assist in achieving balanced growth in the economy."
The AUD is a little firmer since February but not enough to warrant the RBA reverting to its "uncomfortably high" assessment. However, it might introduce a clearer link between commodities and the AUD. It could highlight that commodity prices have weakened somewhat further this year and it would assist if the AUD adjusts in line with commodities.
Key Quotes
The risk is that the RBA inserts some dovish sentences to acknowledge weaker non-resource business investment expectations and lower commodity prices. Anecdotes from the economy, including increasing concern over the pressure for industrial relations reform and less industry assistance from the government suggest the recent recovery in business confidence may not easily transition to higher business investment.
In the February statement the RBA shifted from an easing bias to a neutral bias. This reflected higher than expected inflation in Q4 and improvement in a range of activity indicators and sentiment surveys. The subsequent quarterly statement and policy minutes revealed an improved economic outlook, albeit one that still expected growth to be at best at trend in 2014 and unemployment that was expected to edge higher though much of the year before peaking. The assessment was consistent with a prolonged period of low rates, but that they were perhaps now low enough and might eventually be raised, most likely beyond the current year.
As such the RBA concluded in their February policy statement that, "On present indications, the most prudent course is likely to be a period of stability in interest rates."
The RBA policy statement does not need to change much from the February statement. In that statement it already acknowledged that, "with resources sector investment spending set to decline significantly, considerable structural change occurring and lingering uncertainty in some areas of the business community, near-term prospects for business investment remain subdued."
However, it could add emphasis that this is an issue by noting that recent improvement in business confidence has not helped lift surveyed expectations of capital expenditure in non-resources sectors.
The building blocks for Q4 GDP that is due for release on Wednesday have generally been weaker than expected, especially for capital expenditure. The RBA dropped its sentence in the February statement that the economy has been growing a bit below trend. It could again reinsert this message in light of the most recent indicators for Q4, particularly business investment.
The AUD was boosted after the February statement in part because the RBA dropped its view that it was "uncomfortably high" and replaced it with, "The exchange rate has declined further, which, if sustained, will assist in achieving balanced growth in the economy."
The AUD is a little firmer since February but not enough to warrant the RBA reverting to its "uncomfortably high" assessment. However, it might introduce a clearer link between commodities and the AUD. It could highlight that commodity prices have weakened somewhat further this year and it would assist if the AUD adjusts in line with commodities.