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RBA monetary policy announcement in focus - Westpac

FXStreet (Bali) - Sean Callow, FX Strategist at Westpac, reviews the day ahead, paying special attention to the RBA policy meeting.

Key Quotes

"We see another flurry of Australian official data at 11:30am Syd/9:30am Sing/HK. July building approvals should maintain the picture of a moderate slowdown since early 2014, but from a very high starting point. After -5% in June, we look for another -1% but the median forecast is +1.9%. The series is very prone to surprise, given the role of apartment blocks and other high density developments."

"There are two releases which will impact on tomorrow’s Q2 GDP report, even if newswires only list balance of payments (net exports). We have seen plenty of partial data on Q2 trade and prices, such that there is only low risk of a surprise in the net export contribution to GDP, with Westpac in line with consensus of -0.7ppt, partial payback from the unusually large 1.4ppt contribution in Q1. Much tougher to forecast but still important is government spending. We look for this to print about flat q/q, similar to Q1. While consumption should tick up about 0.3%, investment spending is likely to fall again, with the planned ramp-up in infrastructure still perhaps a year away. Ahead of these releases we are on 0.4% q/q, 3.0% y/y for GDP."

"There is once again no tension over the RBA’s decision on the cash rate and only moderate interest in the tone of the statement at 2:30pm Syd/12:30pm Sing/HK. Commentary on the economy should be wary ahead of the GDP data and indeed with officials already talking about Q3 instead, taking a soft Q2 as given. There has been no inflation data since the Aug meeting though the language on the unemployment rate might be tweaked given the surge in the July report. This doesn’t seem likely to be the meeting that produces a change in the familiar summary line: “the most prudent course is likely to be a period of stability in interest rates”, though the clock is ticking on this phrase. Perhaps there will be slightly more emphasis on the reference to AUD, that the “exchange rate remains high by historical standards, particularly given the declines in key commodity prices”. Overall, tomorrow’s speech by Governor Stevens is likely to be more enlightening."

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