From Morgan Stanley:
Retain Cut in November – Housing Market Crucial:Whilethestatement was less dovish on thecurrency, weretain our view thatanother ratecut will be necessary to support GDP growth over FY16, whereat 2.3% wesit well below the RBA’s last-published growth forecast of 2.9% (with updates to be released on Friday). In particular, weareclosely monitoring theeffect of macro-prudential tightening and investor mortgagerepricing on housing activity.These measures can makespacefor further RBA easing (particularly to again guidethe AUD lower after today’s reaction), whilstalso increasing the chance of an even weaker scenario where multipleratecuts are needed to preventany over-correction in the housing market.
Outside of the housing cycle, we believethe most important barometer for Australia’s transition is non-mining investment, which is arguably a better offset to the mining drag than dwelling investment, given its sustainability and impact on competitiveness. However, we are not seeing evidence that non- mining business investment is improving: intentions remain negative in FY16, while business credit growth has slowed notably over thelast quarter (1.9% in June 3M annualised vs 6.6% in March). Indeed, the removal of the phrase “strong borrowing by businesses” in this month’s decision suggests the RBA is aware of this.
I agree with this though am not especially interested in which meeting it will happen. It could be earlier or later. The next shoe to drop is the same one as the last one: iron ore prices into the $30s.
