The first RBA meeting for 2018 is today, announcement and statement due at 0330 GMT

Earlier previews:

ps. Ahead of the RBA today there is data due, previews:

OK, this preview of the RBA today via CBA (bolding mine, mainly of their AUD comments):

The last rate change was in August 2016. And newish RBA Governor Lowe is the only incumbent not to have changed rates in his first year in office. This track record should remain intact after the first Board meeting for 2018.

  • The cash rate should remain firmly fixed at the record low of 1½%.

The Board discussion will no doubt include:

  • the recent upward revision to global growth forecasts by organisations such as the IMF and the World Bank;
  • the stimulus from the Trump tax package;
  • the ongoing resilience of key commodity prices;
  • the surprising strength in the AUD (or should it be surprising weakness in the USD?);
  • the turn towards rate rises in some major central banks (which the RBA was quick to emphasise has no automatic implications for monetary settings in Australia);
  • the tendency for recent Australian data to surprise on the upside;
  • a labour market that has now delivered an equal-record run of continuous job's growth (15 months);
  • an unemployment rate not far off the 5% level that the RBA has nominated as full employment;
  • improvements in business and consumer sentiment;
  • the cooling housing market;
  • upward revisions by the ABS to the level of household debt;
  • and the absence of any real inflation pressures.

Any Board member running their eye down this checklist would probably agree that the next move in interest rates is up.

But they would also agree that there was no urgency to act.

  • The Q4 CPI readings reinforced the point. The range of underlying or core measures printed below the bottom end of the RBA's 2-3% target band (again). The average of the various measures shows that the inflation rate has undershot the target for eight quarters. An analysis of the CPI basket shows prices of some 70% of items were growing at below 2%pa.
  • Until fairly recently, such an outcome would have the debate on rate cuts hotting up and financial markets pricing for those cuts.
  • But the residual case for another rate cut was pretty much gone by the start of 2017. It was apparent that growth prospects were OK, deflation risks were receding and the housing market was not cooling to the extent expected. By the end of 2017 the RBA's focus had clearly shifted towards a normalising economy. In fact, the RBA spent a fair amount of time in 2017 defining what "normal" meant for a selection of key economic indicators. Benchmarking the current economy against these normal parameters shows activity-type indicators closing in on normal. But inflation indicators still some way off. We expect the gap to close further during 2018 and as the economy normalises the case for normalising policy settings strengthens as well.

One indicator to watch will be underemployment.

  • Trends in this measure of labour market slack are important for the direction of wages and, ultimately, prices. The importance of underemployment is evident as well in its correlation with the RBA's cash rate.

The currency also matters.

  • The RBA has been relatively vocal on AUD trends and implications in recent years.

Two things stand out about the RBA rhetoric on the AUD:

  • concerns are most prominent when the AUD has diverged from the underlying fundamentals;
  • and concerns are typically dialled down when the AUD moves into a USD0.70-0.75 band.

We suspect the RBA is "comfortable" with the Aussie in a USD0.70 - 0.75 range.

  • Our forecasts have the AUD above the RBA's comfort zone in 2018. From a policy perspective this should mean that the RBA will prefer to lag any global tightening cycle. The hope would be to take the benefit in a currency that was lower than otherwise would be the case.

We expect to see the start of a modest rate rise cycle on Melbourne Cup day.

(ps for non-Aussies, this is November 6 this year)

The increased sensitivity of households to changing interest rates will also influence the policy process. It should mean a drawn out rate rise cycle that peaks short of the 3½% neutral rate nominated by the RBA. We put the cash rate peak for this cycle at 2½% and don't expect to get there until early 2020.

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And ... this from the RBA today is not all, there is plenty more to come from the Bank this week:

  • On Thursday (February 8) Governor of the Bank Philip Lowe speaks at the A50 Australian Economic Forum dinner
  • On Friday (February 9) the Bank publish its first Statement on Monetary Policy for the year

And ... don't even get me started on New Zealand ... they've got a big week too:

  • Tuesday (today) is a national holiday, but there will be a dairy auction during London time
  • Then at 2145 GMT on 6 Feb - jobs market report for Q4
  • Followed by (due at 2000 GMT on 7 Feb) the Reserve Bank of New Zealand RBNZ monetary policy announcement