Daily Commentary BY THE CURVE TEAM –

RBA Day

2nd of July, 2019

The RBA is set to weigh up delivering another cut in the rate today amid further data showing the global outlook is still softening.

It is RBA day today and the market is still leaning towards the RBA following up the June rate cut with another one this afternoon. Market pricing has the probability of a move sitting just above 75% and given the Governor has already suggested another cut is coming, then there really is no reason to wait.

One possible reason for a delay in cutting until the August meeting could be the convening of parliament today. With tax cuts the hot topic, the RBA might want to see how policy discussions go before cutting rates and updating their outlook. A pause at this meeting would also give them another month of employment data and quarterly inflation data to feed into their outlook.

The most recent data has done little to suggest that the global outlook is improving. The latest round of PMI’s from around the globe still suggest manufacturing sectors are struggling. It shows that there is more to the weak global outlook than just the outcome of the trade war.

One thing helping the RBA is the fact that the levitating Australian dollar was brought back to earth last night and is now back around the level it was the when the cash rate was cut in June. With the Fed still expected to cut rates at their next meeting, the RBA might take the chance to get on the front foot and knock it lower while it is already on the back foot.

While we will get the RBA’s decision on the cash rate at 2:30, we might need to wait for a full explanation until the RBA governor talks at the RBA dinner tonight in Darwin.

David Flanagan

Director - Interest Rate Markets