The following are brief expectations for the outcome and the strategies for trading the RBA July meeting as compiled from the related research reports of 10 major banks. Overall, the market seems to already price-in a little tilt for the RBA to join other central banks' latest hawkish stance which leaves the AUD vulnerable to a less hawkish outcome.
Barclays Research: We believe the RBA is set to keep rates unchanged, but its commentary on labour market improvement and housing slowdown will be keenly watched, considering that residential construction activity has fallen sharply and was a drag on Q1 GDP. We continue to expect AUD to underperform other majors over the medium term.
Deutsche Research: On balance, it is probably too soon for the RBA to shift the policy assessment from the neutral tone in June, although if there are shifts these can, in our view, only be in the hawkish direction.
Morgan Stanley: We are neutral on AUD for now. On the one hand, the macro environment remains weak, with tepid wage growth, issues related to housing, and broader growth concerns. On the other hand, iron ore prices have continued to rise, which should support AUD terms of trade, and the outlook for China looks reasonable. Weakness in USD should also keep AUD supported.
Credit Agricole Research: While we expect the RBA to remain on hold next week and to continue to signal a neutral policy stance, especially only a few weeks out from the Q2 inflation reading, the AUD could garner some support from a potential upgrade by the Board to its labour market assessment from ‘mixed’ to ‘firm’ following further strong employment growth, especially in full-time jobs.
HSBC Research: We do not expect the RBA to introduce any explicit forward-guidance in its policy statement, although the tone of the commentary may very well be a little more upbeat than previously, particularly on the local labour market. We expect the RBA to point to forthcoming CPI numbers (2Q CPI is due to be published on 26 July) as the next key release to watch.
BNPP Research: The market is likely anticipating a hawkish shift from the RBA, in line with other G10 central banks. We expect AUD/USD to be vulnerable to a less hawkish RBA message. AUDUSD has rallied to 0.77, approaching 2017 highs. However, we do not expect gains to extend much further and view current levels as attractive to build shorts.
ANZ Research: Following the surprising tilts from the ECB, BoE, and BoC last week, the market is on the hunt for hawkish RBA surprise this week. We do not agree with the view that there is a globally coordinated shift in policy taking place, and we do not think that the RBA is on the cusp of shifting its bias. We think the RBA is comfortably on hold and will not want to send a signal to the contrary. AUD bulls beware.
NAB Research: In our view the RBA is unlikely to be hawkish in the sense of changing its monetary policy bias from neutral given still elevated labour market slack and subdued inflation. Nevertheless, the Statement will likely be read more positively by the market given the likes of last month’s stellar labour market figures still strong NAB Business Survey. The market might well infer a hawkish tilt even if it isn’t intended!
Westpac Research: RBA firmly on hold; uncertainties around labour & housing to linger. Westpac continues to expect official rates to remain on hold throughout 2017 and 2018.
BofAML Research: This is likely to be another placeholder meeting for the Reserve Bank of Australia and policy is set to remain neutral with the cash rate remaining at 1.5%. There looks to be little risk that the RBA will follow other central banks and surprise the market with a hawkish signal. The RBA has made it clear it wants to see labor market progress become more broad-based across the states and see average hours worked recover. The Bank will likely remain in assessment mode to see how the broad range of macro prudential and fiscal measures to address housing sector imbalances are playing out. This is likely to remain the case for a few months yet.
