Maybank FX Insight - AUD: CPI Shocks But We See No Cut - 27 Apr 2016

        AUD: CPI Shocks But We See No Cut 

      1Q CPI surprised to the downside with a print of -0.2%q/q, undershooting the consensus of +0.2%.   Market players view the drop in CPI as a potential trigger for the RBA to lower interest rate from its current level of 2.00% as Australia shifts back to disinflationary environment.

      While there is certainly more scope for RBA to ease, we do not think the central bank will do so. Credit growth, capacity utilization rate, retail sales have been holding up and even employment has been resilient, notwithstanding recent softening in the trend measure. For those looking for a cut to weaken the AUD, the exchange rate has clawed back its competitiveness against its trading partners since 2014 and the next cut may not come with the same mileage as the last for AUD bears. More importantly, a cut to boost inflation would waste ammunition in the current global environment which is disinflationary anyway. Rather, RBA would save the gun powder in case demand from China deteriorates further.

      Technically, the bearish divergence that we have been flagging for the AUDUSD has played out with the next bearish target is seen at 0.7450. We see downside risks to our 2Q forecast at 0.78.