Market response to February RBA rate decision - Westpac

Analysts at Westpac write a brief note on the market response to February’s RBA rate decision.

Key Quotes:

“While the RBA reworked the language around the currency slightly (Governor Lowe seems disinclined to repeat paragraphs verbatim), the key point and the important phrases were unchanged: the AUD depreciation since 2013 has helped the economy adjust to the end of the mining boom though appreciation “would” complicate this adjustment (not “is complicating”).

“Given that the unchanged policy outcome was largely as expected, the main information for bond markets was the references to the RBA’s growth and inflation forecasts, which will be elaborated upon in Friday's Statement on Monetary Policy (SoMP).”

“Near term, jitters over the Trump administration’s protectionist trade stance and clashes with big name US corporations over immigration may well continue to undermine USD, helping AUD/USD grind up to around 0.7750.“

“But the medium term prospects for the US dollar remain solid, with Fed officials in recent sessions sounding even more convinced about the need to raise interest rates 3 times this year. Markets are only pricing in about 2 hikes. AUD/USD should retreat towards 0.7500/50 multi-week and to 0.74 by mid-year.”