Australian dollar: Next interest rate cut seen in November, RBA seen needing time to asses impact of recent cuts on non-mining economy

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Category: Australian Dollar News

Written by Rob Samson

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"As such, our next expected rate cut (25bp) is currently pencilled in for November" - Bank of America Merrill Lynch Global Research.

The Australian dollar (Currency:AUD) continues to benefit from a turn-around in global investor sentiment - with commodity prices on the rise it is a certainty the AUD will benefit.

The pound Australian dollar exchange rate is 0.35 pct lower, GBP-AUD is at 1.5280 at 10 AM in London.

The euro Australian dollar rate is 0.32 pct down at 1.2328.

The Australian dollar to US dollar exchange rate is 0.19 pct up at 1.0257. (Latest currency forecasts published at our IMT site, access issued via this Facebook link).



While broader global market conditions remain a key driver for the Australian dollar in the short-term, it is worth noting that any changes to the Australian interest rate (interest rate expectations remain key to currency direction) are unlikely to occur before November of this year.

This is according to Bank of America Merrill Lynch Global Research.

Analysts at BofA note, "The minutes along with recent communications lead us to conclude that, in the absence of any marked deterioration in Europe, the RBA will be comfortable to leave rates on hold until late in the year. In doing so it will be able to assess better the '…measure of stimulus that would be expected to flow through to the domestic economy over the coming months'".

It is argued that the RBA clearly want to see where the 125bp of rate cuts since November 2011 (with 75bp of those in the past two months) gets them in terms of stimulus for the non-mining economy.

"As such, our next expected rate cut (25bp) is currently pencilled in for November – the meeting after the release of Q3 inflation data," says the note from Bank of America.

This is in contrast to the survey of market economists where the median expectation is for a cut in August, the meeting after the release of Q2 inflation data.

No economist is tipping a rate cut at the July meeting next week.

"Market pricing has also sharply discounted this eventuality coming in from an implied 80% probability of a 25bp rate cut as at 15 June to just 25% now. Despite this, the market is still pricing in 100bp of cuts over the next 12m, clearly a reflection of concerns over a marked deterioration in Europe rather than a particularly negative outlook for the domestic economy in the absence of such an outcome," say Bank of America Merrill Lynch Global Research.