HALISTER1: Aussie Slumps After RBA Signals It’s Not Ready to Hike: Roundup

Aussie Slumps After RBA Signals It’s Not Ready to Hike: Roundup

(Bloomberg) -- Aussie fell for a fourth day after the central bank signaled it would keep interest rates at a record low for an extended period.
  • RBA left the cash rate at 1.5%, saying “some indicators of conditions in the labor market have softened recently”
  • AUD/USD dropped 0.5% to 0.7568 after falling to 0.7562, weakest since March 15; 200-DMA support at 0.7551; 100-DMA support at 0.7509
  • Australia’s 10-year bond yield declines 7bps to 2.61%
  • Swaps traders see 9% odds policy makers will cut rates by year-end vs 5% Monday
  • RBA Governor Lowe will speak at an RBA board dinner in Melbourne at 7:15pm local time
Market Views:
  • Credit Agricole (David Forrester, G-10 FX strategist at firm’s corporate and investment-banking unit)
    • RBA has given its strongest indication yet it’s unlikely to raise rates to cool the Melbourne and Sydney property markets
    • The board strongly implies it’s up to banks and Australian Prudential Regulation Authority to ensure financial stability with respect to bank lending to the housing market
    • RBA statement does express some concern about a softer labor market
    • Element of risk-off in markets also weighing on Australian dollar given weaker equities and slide in U.S. Treasury yields Monday
  • National Australia Bank (Ray Attrill, global co-head of FX)
    • RBA’s acknowledgment of a weaker labor market and its stress that macro-prudential restraints are needed to help the housing market provided an excuse to sell the Aussie
    • RBA’s language on FX is unchanged from March, suggesting a strengthening currency would be unwelcome
    • “No perceptible policy bias in the statement and no reason to think the RBA is going anywhere on policy anytime soon”
    • RBA statement looks to contain a few “overs” and “unders” relative to March
    • They have acknowledged the recent weakening in the labor market, while referencing more positive forward-looking indicators
    • Concerns about housing market strength are more elevated but the RBA emphasizes the role of macro-prudential measures in dealing with this
  • Commonwealth Bank of Australia (Jarrod Kerr, interest-rate strategist)
    • It’s a very neutral statement, but RBA is clearly concerned about developments is some areas of the housing market and the softness in the labor market persists
    • Aussie set to extend decline against the U.S. currency, but hold well against currencies like euro and sterling
    • Interest-rate diffentials with the U.S. to keep falling as the Fed hikes and the RBA holds
  • SMBC Trust Bank (Simon Pianfetti, senior manager in market solutions department)
    • RBA statement was balanced, as always
    • “I would avoid being bearish AUD/USD, prefer long GBP/AUD”
    • Aussie sold on two main negative points of employment and housing
  • “They could have sounded more dovish, especially on housing”

Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
David Forrester (Credit Agricole SA)
Jarrod Kerr (Commonwealth Bank of Australia)
Ray Attrill (National Australia Bank Ltd)
Simon Pianfetti (SMBC Trust Bank Ltd)

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