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4 Jul 2014
Risk of RBA keeping rates low for longer - TDS
FXStreet (Bali) - According to Prash Newnaha, FX Strategist at TDS, after Thursday's dovish comments by RBA Stevens and recent data, risk is increasing that a first rate hike will not materialize in Q1 2015, noting that rates may be kept on hold for longer before rates are eventually moved higher.
Key Quotes
So we find it surprising that the OIS market is now pricing in close to a 60% chance the RBA will cut rates by 25bps between Feb and April next year and that 3yr bond yields are close to 1yr lows and the 10yrs well through them. We suspect that yesterday’s miss on the Trade Balance has skewed market perceptions significantly in favour of cuts.
The thinking being that if commodity exports were the key driver behind net exports contributing to GDP, and given mining exports fell off a cliff in yesterday’s release, then where will the growth come from? It’s an attractive argument, but one that risks being simplistic and overstated, much like the risk of a China hard landing, for yesterday’s trade balance data contained heavy revisions to commodity exports, which are likely to be reversed in the months ahead.
TD forecasts the RBA will raise cash rates in Q1 2015. After today’s comments and recent data, we believe the risk to this view is for rates to be kept on hold for longer before rates are eventually moved higher.
Key Quotes
So we find it surprising that the OIS market is now pricing in close to a 60% chance the RBA will cut rates by 25bps between Feb and April next year and that 3yr bond yields are close to 1yr lows and the 10yrs well through them. We suspect that yesterday’s miss on the Trade Balance has skewed market perceptions significantly in favour of cuts.
The thinking being that if commodity exports were the key driver behind net exports contributing to GDP, and given mining exports fell off a cliff in yesterday’s release, then where will the growth come from? It’s an attractive argument, but one that risks being simplistic and overstated, much like the risk of a China hard landing, for yesterday’s trade balance data contained heavy revisions to commodity exports, which are likely to be reversed in the months ahead.
TD forecasts the RBA will raise cash rates in Q1 2015. After today’s comments and recent data, we believe the risk to this view is for rates to be kept on hold for longer before rates are eventually moved higher.