RBA to remain frozen on external factors

RBA to remain frozen on external factors - Credit Agricole

6 September 2018, 02:29

According to a note from Credit Agricole, the Reserve Bank of Australia (RBA) is unlikely to be making any moves on interest rates anytime soon, despite Australia's recent bust-out GDP reading, given that most of Australia's current economic headwinds lie outside of their borders, and connect to cyclical factors that have yet to be solved.

Key quotes

"Australia's GDP data … YoY growth is above the RBA's estimate of potential at 3%. The RBA already knows this … So while the GDP data are good news, they are not likely to shift the RBA on rates as good cyclical data need to be accompanied by stronger wages growth and inflation data to get it moving on rates."

We remain of the view that with the RBA on hold, external factors will be the main driver of the AUD and these factors remain a negative for the currency. So AUD spikes on the back of good domestic news should be sold into unless they threat the shift the RBA on rates.

Soft China Caixin PMI services data, which our China economist notes is showing signs of the government's property cooling measures are beginning to impact on the services sector."