A preview of the Reserve Bank of Australia announcement and Governor Stevens accompanying Statement

  • They are both due at 0330GMT

What's coming today? The overwhelming expectation is for no change in the cash rate. That is not news, it'll be on hold.

Attention is going to be on what is said in Stevens' Statement. But, the most important indicator isn't going to come from the statement. I'll come to what it is in a moment, but its not gonna help any of us.

OK, where are we at?

The picture the RBA is seeing on the Australian economy is a positive one:

  • Jobs growth has been well in excess of RBA expectations - its at its highest since 2006. Each month we get the jobs data from the Australian Bureau of Statistics and each month we highlight that its too good to be true, there are issues with the release, its all about dodgy survey rotation. Fair questions, but it misses the big picture of consistent gains ... best in 10 years. Trees obscuring the woods.
  • Business confidence and conditions - The NAB monthly survey has been positive and better since the middle of last year. The latest survey showed a dip, but still a positive trend.
  • Inflation - its at the bottom end of the target band, showing signs of dipping below in coming quarters but its not soft like it is seemingly everywhere else. On the scale of concerns its ranking very low.
  • House prices - these were a concern, they seem to have passed their shirt-run peak. Housing construction is strong but tending to slow down (building permits have turned lower). This is a grey cloud on the horizon.
  • Business investment is still being dragged down by the lack of resource-extraction investment (the end of the mining boom ... not news) and is not being taken up fast enough in other sectors.
  • The 'official' numbers for GDP came out in December showed growth coming in better than was expected and much above the weak readings of the middle of last year.

The picture of the global economy is not so bright:

  • Turbulence on the global markets to start 2016 have weighed on sentiment
  • Concerns over China
  • Concerns over other markets - emerging markets, commodity exporters ... this is all familiar ground

The RBA is also looking ahead at 'whats to come' - in that on Friday we'll get the Bank's 'Statement on Monetary Policy'. This is issued 4 times a year and contains the Bank's assessment of current economic conditions, both domestic & international, along with the outlook for Australian inflation and output growth. This will give a much clearer picture of the RBA's outlook and its this that is a focus over the Statement from Stevens today (though Stevens Statement today is what we'll go on until Friday).

So, what to look for in the Statement today?

Stevens will be working very hard on the Statement to try to diminish the importance of the bank's satisfaction with developments in the domestic economy, and at the same time he will be trying to emphasise the risks from the global outlook. Why will Stevens be trying to (gently) 'talk down' the bank's outlook? One reason - the Australian dollar.

The decline in the AUD has cushioned the blow from declining commodity prices somewhat and the last thing the RBA wants now is for the AUD to start climbing again. A fall in the AUD gives a boost to the economy (and globally ... its why the 'currency war' meme gets so much play, there is a core element of truth that a declining currency is good for the local economy, anywhere). The Statement today from Stevens will seek to 'talk down' the AUD in some way, Whether its successful or not we'll have to see, but I'd suggest any dip in the AUD on the Statement today will be bought. With ears pinned back.

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And ... finally ... here it is. The one, true indicator for the AUD

OK, I still have mentioned the one indicator that will give a true picture of Stevens' and the RBA's thinking, and the most important clue for the Australian dollar.

But, its an indicator that pretty much none of us will have access to, not even the algo people.

Its ... "How much will Glenn Stevens be smiling?" I suspect the regularly dour Stevens will be on the verge of giggles and guffaws in his satisfaction with progress in the economy. That, more than anything else, will be the best indicator of where the AUD is heading. And, unless you are lucky enough to be lurking in the corridors at the RBA today, you're unlikely to see it all.

The Glenn doesn't get much practice with this particular expression

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ps. Earlier RBA previews I've posted:

  • Australia - Preview of the RBA monetary policy meeting Tuesday 2 February 2016
  • RBA meets February 2, preview of what's expected