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RBA: Tomorrow's trend growth never comes – Deutsche Bank

This week brings two doses of RBA commentary – the first following Tuesday’s Board meeting, and the second in Friday’s quarterly statement and in the wake of recent softness in retail sales and inflation, there may be scope for a slight dovish tilt, according to Tim Baker, Strategist at Deutsche Bank. 

Key Quotes

“The RBA has been banking on strong jobs growth supporting consumer spending, even with soft wages growth. There’s little evidence of that – in fact, retail sales growth has sunk to near-record lows, and car sales are falling. And commentary from listed companies suggests little improvement in the past month. This raises the risk that the RBA’s forecast of a return to trend growth might be pushed back, as it has been consistently over the past year.”

“Still, the market has moved to price some of the above. An RBA hike over the next year was more than fully priced in September, but is now less than half priced. And the AUD has dropped back to levels where the RBA wasn’t expressing discomfort. We also note that the global growth backdrop is still supportive of the AUD – ISMs/PMIs are very high, and EM equities are doing well.” 

“All up, near-term modest downside seems likely around RBA commentary. But dislodging AUD/USD from the high 70s seems tough given the global backdrop. There’s also the USD leg to worry about, with news around tax and politics more generally. In our view, a cleaner trade is to sell AUD/CAD. The BoC has already made a dovish move, and Friday’s job data points to good macro momentum. Further, the oil price is performing strongly, much more so than the iron ore price. A ratio of the two suggests AUD/CAD could slip to 95c.”

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