Dovish RBA could smash Australian dollar

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This makes plenty of sense, via Westpac:

Reserve Banks of Australia and New Zealand meet

  • swap markets pricing a May rate cut at around a 50% chance for both
  • all we can say with confidence is that markets should react sharply to both rate decisions

Westpac is forecasting no change in Australia and a rate cut in New Zealand.

With the A$ trading today at 0.7000, the risks seem asymmetric.

  • There may be only a (fragile) bounce on no change since the statement should include admission that growth and inflation forecasts have been cut since Feb and the RBA should adopt an easing bias.
  • A rate cut however could be very damaging for the Aussie as markets scramble to price in the next easing and ponder how soft the economy must be for the RBA to cut rates 11 days before the federal election.

A great reason to cut. But it would require the bank to change its spots and they appear welded on. I still expect only a shift to easing bias. Cut in June.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.