RBA Preview: Not so rosy – ING

By FXStreet Research Team at ING, suggests that the dismal 1Q16 CPI data is a game-changer for AUD as we near the RBA rate decision.

Key Quotes

The Australian economy looks in decent shape right now. While we think there may be some downside risks to 2016 GDP growth (ING: 2.4%; consensus: 2.6%), we look for activity to materially rebound in 2017 and estimate growth of around 3.2%.

Yet, there is little inflation in the system and last week’s dismal 1Q CPI print has fuelled RBA easing expectations. The negative surprise to 1Q16 CPI (actual 1.3% YoY vs 1.7% cons) has fuelled market expectations for an RBA rate cut, with talk of a move as early as next week’s meeting (3 May). A survey by Bloomberg shows 15 analysts are looking for the cash rate to be left at 2%, while 12 expect a 25bp cut.

Will the RBA pull the rate cut trigger this week? We think not, but certainly look out for a dovish shift in policy bias. While the prior statement stated that “continued low inflation would provide scope for easier policy”, we suspect that next week might be too soon for a material RBA rate cut. Indeed, it would be …read more

Source:: FX Street