Maybank FX Flash - AUD: An Extended Pause Ahead for RBA ?- 6 May 2015

AUD: An Extended Pause Ahead for RBA?

 

§       §  The AUD reacted in line with what we anticipated.  Despite the 25bps cut to the cash rate, AUD jumped to a high of 0.7918 before easing off to trade around 0.7880. The currency still retains some of its post-RBA gains as we write.

§  There are many factors that underpin the 25bps cut and the central bank had pointed out that 1) global financial conditions are still very accommodative, 2) its weak CAPEX numbers and 3) minimal fiscal support anticipated. Lastly, the subdued inflation outlook “provided the opportunity for monetary policy to be eased”. The macro-tradeoff is compelling for the rate cut to support growth in the medium term.

§  We think that focus is now on supporting household demand where monetary policy has a greater impact. There is only so far monetary policy can do for structural rebalancing that this economy needs. With AUD close to our fair-value at 0.75, we think the recent statement and the rate cut at this point has actually given bulls more room to run.  §

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