The September RBA statement gave the market less ‘dovishness’ than it anticipated, and as a result we have seen a sell off across the curve and a modest increase in the foreign exchange value of the AUD.
Reading the statement, it seems like this is the opposite of what the RBA would have liked.
The RBA modestly downgraded their global growth assessment, which lowered their commodity price assessment – and on this basis expressed surprise that the AUD remained so strong.
The exchange rate has declined over the past month or two, though it has remained higher than might have been expected, given the observed decline in export prices and the weaker global outlook.
This is reasonably strong stuff from the RBA. The market reaction suggests the market is threatening the RBA — they are going to have to cut to bring the AUD down.
The statement did not set up for an October cut, and this is why the market sold off (October had ~21bps of easing priced pre-statement). However their confidence that the strength of consumption was due to fiscal policy marks a new sort of skepticism about the data.
It is possible to see an November cut if everything goes right (or more accurately wrong!). Right now, I have no beef with market pricing for December, though pricing for Oct looks wrong to me.
lower interest rates when fiscal policy is becoming reasonably tight and nominal GDP is tepid sounds like a no-brainer.
It also puts another hole in the silly early election hypothesis!!
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