A BoA/Merrill Lynch preview says the Reserve Bank of Australia will cut interest rates at its monetary policy meeting on Tuesday (3 March 2015 ).

This via eFX:

A Cut This Week But It's A Close Call:

  • "It is uncontroversial to expect that the RBA will cut rates again in 1H15; the question remains when.
  • We expect it will cut again at its March meeting this week but the uncertainty is high.
  • This is because although we accept that the short-term economic outlook warrants further easing, the RBA has provided no communicated forward guidance. And while a more dovish stance seems implied by its downgraded growth outlook, it does not seem to be holding a strong easing bias at all. This uncertainty is also reflected in the forecasts of the community of market economists, which remain divided"
  • "Consequently, it will not only be the RBA's action and any alteration of its language that will be watched from the March meeting to shape expectations: although if recent history is any guide the RBA may be reluctant to provide any more insight in this space suggesting that it itself is assessing the outlook based on short-term developments"

FX Implications:

  • "The news flow from Australia has been generally negative over February - a surprise 25bp rate cut by the RBA, weak employment data and subdued investment intentions for 2015-16.
  • Yet AUD is ending the month marginally higher versus the USD and on a trade-weighted basis.
  • As is often the case, this is symptomatic of a crowded trade and consistent with evidence that the market is very short AUD. This positioning may limit the near-term impact of a March rate cut, much as it did in February"
  • "Beyond the positioning risk however, we think the medium-term fundamental rationale for a weaker AUD remains compelling"
  • "We believe the RBA will not dial down its concern around currency strength in its statement and risk undoing the "hard-fought" depreciation that has been achieved over the past few months. The risk of sizeable CNY depreciation adds to our bearish conviction on the AUD"