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Will the RBA cut rates?

Published May 6, 2019

By Perry Mitchell

Following on from a week of better than expected Euro GDP, US employment data and the Fed’s confusing stance… We find the markets lacking a sense of conviction on basic sentiment. Once again though, Trade talks with the US and China have taken the limelight this morning.

The one and only, US President Trump announced on Twitter that trade negotiations with China were going “too slowly” and tariffs on $200 Billion of Chinese goods will increase to 25% (from 10%). Trump also added that he would target another $325 Billion worth of goods “shortly”. The announcement has caught markets by surprise, as we saw further positive developments within the Trade saga towards the end of last week. The USD has immediately clawed back the losses incurred on Friday at the expense of the risk-based currencies like the AUD. With this, the AUD/USD pair slipped beneath 0.6980 support as it flashed the fresh low since January 2019 to 0.6968 during the early Asian session this Monday morning. The trade negotiations will now be the focus for the first part of the week as markets await China’s response, ahead of the RBA.

Locally the week ahead see’s The Reserve Bank of Australia announcing their rate decision on Tuesday Afternoon at 2:30 pm AEST. It is a close call with market opinion very much split between whether we will see a cut in rates or not. The RBA has recently opened the door for a rate cut after recent soft Australian data which has seen the AUD come under pressure and test the key 70 cent level.  However, it is a poor inflation report that might force the hand of the RBA.  Headline CPI is at 1.3%, a full percent below the RBA target mid-point of 2.5%, with many believing that the RBA will have no choice but to cut rates.  A Bloomberg survey of economists shows 14 of 26 respondents predicting a cut.