AUD: Trading The RBA - Views From 10 Major Banks



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The following are brief expectations for today's RBA October policy statement as compiled from the related research reports of 10 major banks.  
Overall, the consensus expects the RBA to maintain its policy unchanged with a neutral bias.
On the AUD front, the consensus seems to expect a limited impact on the currency from today's meeting.
Trade-wise, going into the meeting, eFXplus' aggregate derived data show 2 strategy desks maintaining long AUD exposure vs NZD, and 2 other desks promoting short AUD around current levels vs USD. 
TD Research: TD and consensus expect the RBA to keep the cash rate on hold at 1.5% at Tuesday’s meeting. We expect the Bank to reaffirm a neutral monetary policy bias again and for the Bank to shy away from introducing any changes to the statement. AUD near-term technicals  Support: US$0.7750   former, multi-month range top/ breakout area and first retracement ( 38.2%) of this year’s rally off 0.7150, and 100 DMA. Resistance: US$0.7900  three month pivot then stronger on $0.80 handle, cycle highs.
Credit Agricole Research: The RBA is widely expected to leave rates on hold and is unlikely to significantly change its neutral rhetoric ahead of the 25 October CPI reading. The RBA is likely to continue to point to a firming labour market, but that it expects wages growth to remain low for “a while yet”. The Board is also likely to continue to sound relieved that there is an easing afoot in housing market conditions. On the currency the RBA is likely to continue its jawboning by saying, “An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.” An area for potential surprise is any reference to the spike in local gas and electricity prices.
Barclays Research: we do not see the RBA policy statement (Tuesday) as a significant driver of the AUD this week, as the Board will likely continue to advocate patience in policy normalization, even though the commentary from the RBA could be more upbeat given the ongoing improvement in the labour market. Although the RBA has maintained a cautiously optimistic bias on growth, we think there is no urgency on the part of the RBA to raise rates, given low wage growth and worries of the impact of higher rates on household debt servicing. Rather, we think movements in the USD and commodity prices would be more important drivers of the AUD. 
RBC Research:  We expect the RBA to leave the cash rate at 1.5%. Since the board last met, key domestic data have been on the firmer side of expectations (labour market) with Q2 GDP  printing  broadly  in  line  with  the  RBA’s  forecasts. While the housing data and anecdotes have softened, this is unlikely to be of much surprise to the RBA although we will be watching for any shift in rhetoric. They will likely retain faith in their base case assumption for growth to return to a 3% plus pace with inflation heading back into the target range.   
Morgan Stanley Research: We turn bearish on AUD as its yield sensitivity should see the currency depreciate, particularly in light of USD strength. Iron ore prices continue to drift lower, and softening demand from Chinese steel production should weigh negatively on AUD. Moreover, the RBA is concerned about the ratio of household debt to income, which is at a current high of 190.4 percent. Speaking on Tuesday, RBA assistant governor Bullock said that the risks of rising rates amid Australia’s external liability position and domestic debt might keep her “awake at night”. We like to fund USD with AUD and enter into a short AUDUSD, targeted at 0.75
NAB Research: First up the RBA Board Meeting. The market unanimously expects the RBA to be on hold. However, recent strength in the labour market has also seen the market reassess its expectations for the cash rate and is now fully pricing an RBA rate hike by August 2018. NAB is similar and is expecting two rate hikes in 2018 – one in August and one in November. 
BofAML Research: The RBA does not appear overly concerned with the strength of AUD but for good reason: the fact is that despite the dramatic trade-weighted appreciation in AUD during July, our latest estimate suggests the RBA's own model would show the exchange rate at close to "fair value" implying there is little reason for the RBA to be overly concerned with the current level of the exchange rate. "A bit lower" is always welcome, but the RBA is unlikely to revert to the more active verbal intervention it engaged in a few years ago. We maintain a mild bearish bias for AUD FX from current levels. A slowdown in Chinese property investment in 2H 2017 and a stronger USD could yet be the trigger for further depreciation before year end.
Westpac Research: There will be no change to the cash rate. As with recent meetings, the interest will be in the Governor’s commentary. In fact, we don’t envisage too much change in the key themes which are consistent with a neutral policy bias. Markets and many banks expect this bias to change by year’s end to a tightening bias. We expect the cash rate will remain on hold over the course of 2017, 2018 and 2019. We point out that the RBA has a very different growth outlook for the Australian economy and Australia's trading partners than our own. The RBA expects growth in Australia to be 3.25% in 2018 and 3.5% in 2019 (above trend of 2.75%). Westpac expects a below trend pace of 2.5% in both years.
ANZ Research: The AUD is unlikely to get much momentum out of the RBA meeting this week as the statement will remain largely unchanged. The AUD is likely to continue to trade in a narrow band against the USD, at least in the near term.  Domestically, the growth outlook remains solid and the RBA’s recent shift in bias – which prompted us to pencil in two rates hike in 2018 – means the AUD remains well supported. That said, this tightening cycle is likely to be very shallow; and a move of this magnitude has largely been accounted for by investors. The net result is that, at current levels, the AUD is unlikely to get much impetus from the domestic backdrop.
ING Research: RBA meeting this week will take centre stage (Tue); our economists are not looking for any change to the neutral policy bias, with concerns over fuelling AUD strength one of the major reasons for not tilting towards a more hawkish stance. Certainly, the macro backdrop remains mixed: diminishing signs of slack in the labour market and stronger economic activity are positive developments, while inflation remains uncomfortably low. The negative references to a strong currency weighing on growth and inflation are likely to be retained

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