The preview of the RBA from TD looks also at the likely Australian dollar response.
TD assess the probability of a hawkish RBA at approximately 0%
- Extremely hard to justify when the Fed, BoC and ECB have dialled back their hawkish monetary policy stance and the RBNZ has moved to an easing bias.
- TD say the market reaction in the AUD to hawkish would be +1.5 US cents
Probability of a neutral policy approx. approximately 85%
- The Bank is in 'wait and watch' mode. Luci Ellis' speech on "What's Up (and Down) With Households" suggests the Bank is happy with the current monetary policy setting - "So in the main, outside the household sector, the economy is not doing too badly", but the Bank is unsure "how much weak non-labour income growth will weigh on consumer spending". In this regard, the Bank can afford to wait till Q1 GDP to assess progress particularly with jobs data published last month a touch better than expected.
- Say the market reaction in the AUD to neutral would be +0.20 US cents
Dovish probability assessed at approx. 15%
- Data on the labour market - Unemployment in Feb and Feb Job Vacancies - were a touch better than expected. It appears unlikely therefore that the RBA will strike a dovish tone. The RBA Gov noted in his testimony to the House of Reps on 22nd Feb "...if there were to be a sustained increase in the unemployment rate and a lack of further progress towards the inflation objective, lower interest rates might be appropriate at some point...The Board maintains its strong focus on the medium term and is seeking to be a source of stability and confidence. As was the case six months ago, it does not see a strong case for a near-term change in the cash rate." That said, the RBNZ's shift to an easing bias will have markets on watch.
- AUD response -0.80 US cents
