Preview of the Reserve Bank of Australia monetary policy board meeting (today, with the announcement scheduled at 0330GMT) are here and here
Here are the views from 16 major banks (via eFX):
Goldman: We expect a 25bp cut (Cash Rate Target to 2.00%, in line with consensus).
Deutsche Bank: It is difficult to recommend a trade into the meeting given that our assessment of the prospect of a rate cut is similar to the market's (on balance we narrowly favour a cut at this meeting). As far as the statement is concerned, should the Bank ease we expect the statement to be drafted in such a way as to prevent the market from concluding that the cash rate is heading significantly lower over the near term. Conversely, should the Bank leave the cash rate unchanged, we expect the statement to read dovishly leaving the door open for a future cut. Elsewhere in the statement we suspect the RBA will continue to note that a lower currency would assist in achieving more balanced growth in the economy. After all, that statement remains true even if the currency is closing in (or has closed in) on the Bank's own 'fair value' estimates.
BofA Merrill: 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: 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 Februar. Beyond the positioning risk however, we think the medium-term fundamental rationale for a weaker AUD remains compelling.
Morgan Stanley: Heading into the RBA meeting this week, we think that the question around future rate cuts revolves around when and not if the bank eases further. Our economists continue to forecast a 25bp cut in March and a final 25bp cut in May, leaving the cash rate at 1.75%. In contrast, the rates market appears to be pricing in roughly 10bp for March and a cumulative 30bp by May, leaving AUD vulnerable if the RBA meets our expectations. A more gradual easing cycle will simply result in markets pricing in more for later and, hence, we don't expect AUD to see much relief if the RBA stays on hold.
Barclays: After starting a new easing cycle in February, we think the RBA (Tuesday) will very narrowly favour keeping rates on hold at 2.25% in March. Our expectation is that the RBA will cut again in May, although there is a very clear risk that RBA brings forward the rate cut to next week given that the latest capex survey unexpectedly revealed a dismal outlook for non-mining investment in 2015-16. The market is pricing in around a 50% probability of a 25bp rate cut, and a cut should still see the AUD sell-off. Even if RBA holds the rate, we also see the RBA strongly signaling an easing bias, while indicating its desire to see the AUD falling further on a trade-weighted basis. This should limit any upside bounce in AUDUSD. Should USD data surprise positively over the week, we see AUDUSD underperforming among G10 FX.
Credit Agricole: We think it is too soon for another RBA easing. This is not a consensus view, with a small majority of RBA-watchers leaning towards another cut. Even so, policy makers long ago flagged the fall in mining investment now evident in the data - another 0.25% cut will not remedy that situation given weak coal and iron ore prices. Nor will an RBA cut this week produce a timely rebound in construction activity given the unattractive combination of already inflated domestic income and high prices. What the RBA could do is provide a further boost to the terms of trade by helping reverse February gains in the AUD trade weighted index. However, with household debt still alarmingly high, policy makers are likely to err on the side of caution and wait a bit longer before pulling the trigger once more. Notwithstanding this view, we remain short AUD/NZD.
BNPP: Our economist notes that the recovery in the AUD increases the scope for the RBA to easing this week. Although with nearly 50bp of additional easing priced over the next year, we see AUD's outlook skewed to the upside. We favour long commodity bloc currencies vs. EUR and JPY-funded positions.
JP Morgan: With respect to the RBA, we look for a 25bps policy rate cut to an all-time low of 2% premised on front-load the additional policy stimulus given the disappointing capex print from last week, although this remains a close call given financial stability concerns.
Westpac: The Reserve Bank Board meets on March 3. We expect that it will decide to cut to overnight cash rate by 25bps from 2.25% to 2.00%. The key to the decision this week will be whether the Governor sees the cash rate as having a natural 'floor' of 2%. In that case cutting rates this week with an associated neutral bias might see markets assessing that the Bank has exhausted its rate cutting capacity. Such an assessment would be dangerous from the perspective of holding down the AUD...What we can be absolutely certain of is that the cash rate will be reduced by 25bps by May this year. That said, the best policy is to cut by 25bps in March and adopt a clear easing bias. In these circumstances it is best to forecast good policy rather than angst over 'second guessing' what might happen
Credit Suisse: The market is currently pricing a 56% chance that the RBA cuts rates 25bp this week. However, we think that an April cut is more likely. The minutes from the February meeting suggest the decision was between cutting rates in either February or March. We think the outlook would have needed to deteriorate notably to push the RBA to cut rate at back-to-back meetings.
NAB: NAB continues to forecast no change in cash rates tomorrow, expecting the board to elect to monitor developments in the housing market in particular, but in the economy more generally, following the rate cut last month and as the economy also responds to the influence of the lower $A and lower oil prices. February was a very short month, it having been only four weeks since the last board meeting, which also argues for a little bit more watch-time before a further move, which NAB currently expects in May. The weekend's auction results continued the very elevated clearance rates of recent weeks, which should also provide some cause for caution. This suggests the risk that the $A moves slightly higher in the very short term and interest rate markets move modestly higher also, though medium term, we continue to expect developments in US interest rate markets to be negative influences for both the $A and for Australian term yields
SEB: The upcoming decision will be a close call but another cut but another cut seems more likely , not the least as the currency remains about as strong as prior to the previous meeting. RBA indicates fair value in AUD/USD is around 0.70-0.75.
BTMU: There is obvious speculation now that the surprise PBOC move will result in other central banks following and the RBA is the most significant other central bank decision taking place this week. AUD/USD is lower today and after the weaker than expected capex data last week, the PBOC easing has certainly raised the potential for another rate cut by the RBA. However, we maintain that the reasons for easing are not as compelling as they were a month ago and continue to err on the side of the RBA holding off - admittedly though, like last month, it is a close call. An unchanged RBA decision may offer some temporary relief for the Australian dollar but the RBA is likely to keep open the possibility of a rate cut and hence the upside scope for AUD/USD will be limited.
RBS:We are against the consensus, anticipating the RBA leaves the cash rate target unchanged at their meeting. Concern about the strengthening housing market may leave the RBA content to leave the cash target rate steady as it assesses the impact of macroprudential measures introduced in December. Still, domestic data have moderated and we expect the RBA is likely to cut again during this easing cycle, though we think a cut is more likely in May, after the next CPI report.
ANZ: ANZ's Australia team believes that the RBA will cut today by 25bps to 2.00%, though it is not a clear-cut decision. The data-flow since the February RBA cut has been disappointing (including tepid nonmining capex), suggesting the RBA will see little value in waiting for further confirmation of the need for additional stimulus. While expected 2014 growth of 2.7% would be considered more than respectable by most developed countries in this global environment, much of the acceleration in growth in Q4 looks to be due to housing construction and net exports - strength which is of questionable durability. China's rate cut confirms that all is not well in Australia's largest trading partner. Similar to the New Zealand situation, the fly in the ointment for the central bank is strong housing lending and buoyant housing markets in Sydney and Melbourne. However, Australia is yet to introduce macro-prudential measures to cool housing. An RBA rate cut today would likely lead to a knee-jerk stronger pricing of rate cut odds here in New Zealand (currently 50% odds by the end of July).
UBS: UBS expects the RBA to cut 25bp, to a fresh record low of 2.00%, but we cannot rule out a pause. Our view of further easing is supported by data since their last meeting showing a collapse of capex intentions for 2015/16, as well as the spike of the unemployment rate to a 13-year high. Q4 real GDP should grow modestly at 0.50% q/q, after a weak 0.30% in Q3.
