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5 Dec 2014
RBA may cut rates by 1% in 2015 – DB
FXStreet (Barcelona) - The Deutsche Bank Research Team anticipate RBA to cut rates by 1% in late Q3/ early Q4 of 2015 in lieu of moderation in house price growth, on-going decline in commodity prices and the expected increase in unemployment rate.
Key Quotes
“We now see 50bps of easing by the Bank in 2015, with a cut of 25bps in late Q2 2015 and a further 25bp easing in late Q3 / early Q4. For us, the change in view comes amid nascent signs of moderation in house price growth and the likelihood of some ‘macro-pru-lite’ to cool the investor segment of the housing market, combined with our forecast for the unemployment rate to move higher through 2015 and on-going declines in commodity prices.”
“It has been a big week for the AUD front-end, with calls for easing reinforced by the impact of a weak Q3 GDP report. The considerable weakness across income measures in the national accounts is for us the key component, and suggests that the ‘starting point’ for the economy in H2 2014 was somewhat weaker than we had expected. Put simply, we see the Q3 national accounts as consistent with a rising unemployment rate and falling living standards.”
“All up the Dec-15 AUD bank bill has rallied almost 20bp since its close on 28 November. This means that the market is pricing a cash rate of a little above 2.1% by the end of 2015.”
“Unsurprisingly, AUD/USD declined this week, down 1.3% over the week as of Friday morning. While our AUD/USD forecasts were set on the expectation of a narrowing interest rate differential, the move came earlier than we had anticipated, suggesting downside to our year-end forecast.”
Key Quotes
“We now see 50bps of easing by the Bank in 2015, with a cut of 25bps in late Q2 2015 and a further 25bp easing in late Q3 / early Q4. For us, the change in view comes amid nascent signs of moderation in house price growth and the likelihood of some ‘macro-pru-lite’ to cool the investor segment of the housing market, combined with our forecast for the unemployment rate to move higher through 2015 and on-going declines in commodity prices.”
“It has been a big week for the AUD front-end, with calls for easing reinforced by the impact of a weak Q3 GDP report. The considerable weakness across income measures in the national accounts is for us the key component, and suggests that the ‘starting point’ for the economy in H2 2014 was somewhat weaker than we had expected. Put simply, we see the Q3 national accounts as consistent with a rising unemployment rate and falling living standards.”
“All up the Dec-15 AUD bank bill has rallied almost 20bp since its close on 28 November. This means that the market is pricing a cash rate of a little above 2.1% by the end of 2015.”
“Unsurprisingly, AUD/USD declined this week, down 1.3% over the week as of Friday morning. While our AUD/USD forecasts were set on the expectation of a narrowing interest rate differential, the move came earlier than we had anticipated, suggesting downside to our year-end forecast.”