We expected the
Reserve Bank of Australia to cut interest rates at the start of November but
Governor Stevens & Co decided to stay put with the 3.25% base rate. In our
defence, this was pretty close to a 50:50 call. We still view the RBA as more likely
than not to cut the rate by 0.25% in the early hours of next
Tuesday morning
(December 4th). Of course, there are still clearly risks of another non-event,
but in the last few days, the market appears to have come around to our way of
thinking.
The minutes
from the last RBA meeting were noticeably dovish, despite electing not to cut
the interest rate, as indicated by the phrase “members
considered that further easing may be appropriate in the period ahead.”
There have been mixed signs in terms of aussie
data in the past month. Wage price growth data slowed right down, as did
consumer inflation expectations, which both point to monetary easing. However,
China’s manufacturing sector grew for the first in 13 months, which has made
things a little more complicated.
The slowdown within the recent quarterly private capital
expenditure figure has once again strengthened the case for a rate cut, as has
this morning’s weak Australian private sector credit data. The decision last
time was a close call; these figures should have tipped the balance in favour
of a cut.
The peak in the mining boom is fast approaching,
while the aussie government remains committed to fiscal tightening. The
Australian economy should be in for an early Christmas present next week!
Richard Driver
Currency Analyst
Caxton FX
