by Chris Becker
It’s that crazy time again – predicting interest rate decisions from the RBA monthly meeting. It’s very hard to make predictions, especially about the future, but I think this one is in the bag: hold. Mainly because of ammunition required in the quarters and years ahead as we “sleepwalk into recession”.
Let’s take a quick preview of what the RBA has to think about and where the AUD could go thereafter.
As Eamonn Sheridan noted yesterday at Forexlive, the latest survey of economists suggest no change in rates today with interest rate futures also benign on the result.
The falls in share prices, while sharp, are not yet enough to give credence to a rate cut, given that bank share prices have held up well (but watch for the howls if that support line is broken!)
The national income shock is still ongoing, however, as commodity prices and the terms-of-trade retrace. And yesterday’s Business Indicator print revealed no rise in inventories, with continued falls in sales.
Earnings season on the ASX has also shown how razor thin profitability has become in the income recession, with operating profits down nearly 2%
Although the full Q2 GDP print won’t be announced until tomorrow, the RBA will have the results at its meeting today – and that’s where we should be watching the tone and tenor of the language within the accompanying statement.
And maybe they don’t need to talk down the Aussie dollar – given they’ve done sweet fridge nothing about it for years – since it’s now at a yearly crossroads on the charts:
The monthly chart above shows the rising trendline from the 2000 near-recession low at 47 cents, through the GFC low at 60 cents, and now the income recession low at 71 cents.
With more downgrades coming from investment houses, a break of this line could see the GFC low revisited very quickly, helped along by a dour growth statement from the RBA later today.