We get the Minutes of the Reserve Bank of Australia May meeting today

  • Due at 0130GMT

I posted a quick preview from RBS, here: Coming up / preview - Minutes of May RBA Monetary Policy Meeting

This morning ... scanning over & summarising some of the expectations from the various bank analysts:

Wespac (Sean callow):

  • We see risks of a dovish tone
  • While the RBA cut rates in May, there was no guidance in the statement

(and, just to interrupt here ... this is not unusual at all. When the RBA changes rates, as they did at the May meeting (a 0.25% cut, if you recall) they do not provide guidance in the accompanying statement

OK, back to WPAC:

  • A more balanced signal was used in the quarterly Statement on Monetary Policy ... "Board will continue to assess ... and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time"
  • The downgrade in the inflation forecast is an implied mild easing bias

Credit Agricole:

  • Focus will be on any deterioration in the RBA's assessment of the Chinese economy
  • The recent short-rate spread move higher in AUD's favour may also have run its course ... after falling to a mere 1.10% last week, New Zealand's 3month yield expectation advantage over Australia should widen-out again this week returning pressure to AUD/NZD

Westpac (Chief Economist Bill Evans):

  • Our view on rates is that while-ever the RBA continues to expect growth in 2016 of 3.25% it is unlikely to see the need to cut again
  • Our own forecast is for 3% growth ... If momentum in the economy, particularly around the household sector, starts to slow through the second half of 2015 then the Bank will find it difficult to maintain its above trend growth forecast and will have to begin cutting rates again
  • However the likely move would be a total of two cuts, to, say February next year
  • Perhaps the most important likely development that will impact the AUD over the course of the next year will be the policy of the US Federal Reserve
  • Markets are currently too complacent about the Fed
  • We expect that the first move will be in September
  • The US unemployment rate is now in the 'full employment' range of 5-5.5% (5.4%) and there is recent evidence that wage pressures have intensified
  • Our forecast is that the Fed will lift rates twice in 2015 (in September and December) and on four more occasions in 2016
  • Under such a scenario, even with a steady policy from the RBA, the short term yield differential between Australia and the US will narrow from 1.875% to 1.375% in 2015 and 0.875% by mid-2016. A combination of the market being surprised at the pace of Fed hiking, which will lift the USD outright, and a sharp narrowing of the yield differential with Australia is likely to see the Australian dollar move back towards a level which is more consistent with the commodity price environment.