I bombed the May RBA meeting (thinking they would hold, when they cut 25bps to 2.75%) because the demand test i thought they had set out had not been met.
The post-cut media blitz suggested that the RBA communications department had been clear that the cut was due to the high level of the AUD, with the AUD down about 8c from the April peak, that means the RBA won’t cut in June right?
I think you would be wrong to assume that.
Let’s review the fresh data. House prices look to have fallen by ~1% (NSA) in May, consumer confidence is back below the break-even 100 level, and both high frequency (weekly internet job ads) and the higher quality DEWR job ads data suggest that labour demand resumed tumbling over the prior two months.
What happened? A story i like is that something changed in the mining sector – which is what you should expect given that the new CEOs are there to increase the return on capital (rather than grow). The likely and possible projects in the above BREE report are becoming less likely …
By the time of the June RBA meeting, we will basically know Q1 GDP (as we will have all the parts) and we will also have a much updated understanding of the investment outlook.
Right now, I don’t think the RBA is most likely to cut by another 25bps to 2.5% on 4 June — but i can sure see how the case might be made by the data over coming days. It’s certainly a better shot than the 1/5 the market has priced.
The RBA said they had only used some of their scope following May’s (close) meeting. If they downgrade their GDP forecast they will have even more scope and are likely to use some of it.