FX Notes: AUD: RBA – A Limit to Monetary Policy - 10 Jun 2015

§  AUD: RBA – A Limit to Monetary Policy

§  RBA Glenn Stevens spoke of how the central bank remains open to the possibility of further policy easing, if that is, on balance, beneficial for sustainable growth but he also cautioned that monetary policy cannot deliver everything the economy requires. He urged greater use of fiscal tools to create the upside that the economy needs. §  We expect RBA to pause for an extended time to assess the transmission impact of its recent cut and we see higher bars for further easing as the central bank continues to weigh its impact on the housing market. §  Despite the fact that RBA will not take the cash target rate below the 2.00% easily, we anticipate the AUD to remain bias on the downside given the fragile outlook of the economy. Weak fundamentals and deterioration in terms of trade could pressure the AUD and as investors de-risk away from Australian assets. Near term trade to remain whippy with 0.7800 as first resistance ahead of the next at 0.7850. Volatility is still here to stay and rallies are seen as opportunities to fade into as we expect dollar strength to dominate towards Aug-Sep ahead of the Fed rate hike in Sep.