AUD -  Australian Dollar

AUD, Australian Dollar, RBNZ, Currency Analysis, fx trader, forex

The RBA left its assessment of the macroeconomic picture unchanged compared to last month, although barring adverse shocks, the stabilisation of the scenario implicitly contains the indication that the rate cut cycle should be over. Further upward revision for the AUD.

At this month’s meeting (7 March), the Reserve Bank of Australia effectively confirmed the scenario outlined at its previous meeting on 7 February, leaving rates stable at 1.50% – as unanimously expected.

On the international front, it confirmed that the global economy has kept improving in the past few months, both in terms of growth and of inflation, with a resulting further increase in commodity prices, a markedly supportive factor for the Australian economy. Specifically, the RBA reasserted that “there is no longer an expectation of additional monetary easing in other major economies”.

In our view this also applies to the RBA, which after cutting rates twice last year, should now leave them unchanged for the remainder of 2017, possibly considering a resumption of the hike path next year.

This is because on the domestic front the RBA remarked that the Australian economy is successfully taking on the transition phase after the mining sector boom, achieving 2.5% growth in 2016, from 2.4% in 2015. The trend of exports and investments in sectors other than mining was particularly encouraging. The RBA expects this positive evolution to continue: the forecasts contained in the February Statement on Monetary Policy point to 2-3% growth this year, followed by an acceleration to 2.5-3.5% next year. For what concerns inflation, the central bank expects it to remain low for a while longer, possibly rising back above 2% already before the end of this year, in line with the forecasts contained in the latest SMP: inflation at 1.5-2.5% both at the end of 2017 and at the end of 2018. The resurgence in commodity prices, under the positive assessment of the outlook for global growth (including China), remains the decisive factor for the price trend both at present and going forward, in particular in terms of the return to target (2-3%) on a one-year horizon.

In a recent address to Parliament (24 February), RBA Governor Philip Lowe stressed this is very aspect, spotlighting the upside reversal of commodity prices as a major factor also in explaining the progress achieved by the Australian economy in the course of the past year. In our view, this improvement marks a real turning point, which barring new severe shocks at the global level should be non-reversible, as it indicates that the Australian economy has positively overcome the test posed by the conclusion of the mining sector boom, freeing the central bank from the need to loosen monetary policy.