5 Feb 2014
Flash: RBA to remain on hold through 2014 - Nomura
FXStreet (Bali) - According to Charles St-Arnaud, Economist, and Martin Whetton, Rates Strategist, both working for Nomura, yesterday's RBA monetary policy decision reinforces the belief that of the RBA to remain on hold through 2014.
Key Quotes
"Overall, the decision to leave the policy rate on hold was consistent with our view that higher-than-expected inflation in Q4 quashed any desire to cut interest rates. Moreover, it is clear by reading the statement that the RBA has either upgraded its expectations for growth or, at least, that the downside risks to growth have diminished significantly since the December meeting. More specifically, the RBA seems pleased with the current level of AUD, improved sentiment and indications that residential construction is picking up. As mentioned previously, Friday‟s Statement on Monetary Policy should reflect slightly higher growth and inflation expectations than the November edition. Our views on monetary policy remain unchanged and we continue to believe that the RBA will remain on hold through 2014."
"In recent weeks, Australian rates and FX markets have been in a tug-of-war between EM and equity market concerns and mostly better Australian data. The Q4 CPI data, which were stronger than expected, started to flatten the curve and saw the front end price in OIS price hikes into the forward market. AUD, however, remained fragile given the EM concerns, lower commodity prices and comments from the RBA‟s Ridout, a well-known dove on the board, who said she believed AUD would be better for the economy if it was at 80 cents."
"The rates market responded to the neutral stance by selling off across the curve, which suggests the market did not expect the previous bias to cut rates to change. We saw a significant flattening of the curve, which is in line with our recent views. AUD responded with a solid jump, from .8760 to .8894. History tells us that the Australian market rarely sits still for long periods, and while a near term policy hike is not a concern, the market will look to price in the path of hikes now that the bias to ease has been removed. We expect the front end of the curve to remain under pressure."
Key Quotes
"Overall, the decision to leave the policy rate on hold was consistent with our view that higher-than-expected inflation in Q4 quashed any desire to cut interest rates. Moreover, it is clear by reading the statement that the RBA has either upgraded its expectations for growth or, at least, that the downside risks to growth have diminished significantly since the December meeting. More specifically, the RBA seems pleased with the current level of AUD, improved sentiment and indications that residential construction is picking up. As mentioned previously, Friday‟s Statement on Monetary Policy should reflect slightly higher growth and inflation expectations than the November edition. Our views on monetary policy remain unchanged and we continue to believe that the RBA will remain on hold through 2014."
"In recent weeks, Australian rates and FX markets have been in a tug-of-war between EM and equity market concerns and mostly better Australian data. The Q4 CPI data, which were stronger than expected, started to flatten the curve and saw the front end price in OIS price hikes into the forward market. AUD, however, remained fragile given the EM concerns, lower commodity prices and comments from the RBA‟s Ridout, a well-known dove on the board, who said she believed AUD would be better for the economy if it was at 80 cents."
"The rates market responded to the neutral stance by selling off across the curve, which suggests the market did not expect the previous bias to cut rates to change. We saw a significant flattening of the curve, which is in line with our recent views. AUD responded with a solid jump, from .8760 to .8894. History tells us that the Australian market rarely sits still for long periods, and while a near term policy hike is not a concern, the market will look to price in the path of hikes now that the bias to ease has been removed. We expect the front end of the curve to remain under pressure."