ANZ Bank has a warning for the Australian dollar bulls.
Just because other major central banks have turned hawkish on the outlook for monetary policy doesn’t mean the RBA will follow suit.
Daniel Been, head of FX research at ANZ, explains why he’s wary about chasing the Australian dollar higher ahead of today’s rates decision:
The starting point for the RBA is different. The degree of slack in the Australian economy gives the RBA time, and the starting point, while historically low, is also well above that of the other central banks. The BoE and ECB are starting from a point of unconventional policy, while the BoC is starting with a policy rate of just 0.5%, a full percentage point below that of Australia.
We continue to think that the Bank is some distance from connecting the improvement in the labour market to a more confident statement on wages — a necessary step before it changes its bias.
As such, we think that the market is at risk of disappointment tomorrow.
Essentially, while labour market conditions have recently improved in Australia, there’s still a lot of underutilised workers, an outcome that points to continued slow growth in wages, inflationary pressures and household consumption, the largest component within the Australian economy.
That’s very different to what’s been seen in Canada and the UK recently, helping to explain the hawkish shift in rhetoric from the Bank of Canada and Bank of England that’s occurred over the past couple of weeks.
It also helps explain why Been, and many others, don’t think the RBA will go down that path today.
“We do not agree with the view that there is a globally coordinated shift in policy taking place, and we do not think that the RBA is on the cusp of shifting its bias,” he says.
“We think the RBA is comfortably on hold and will not want to send a signal to the contrary.”
He signs off with the warning: “AUD bulls beware.”
The AUD/USD currently buys .7663, having risen by 2.5% apiece against the greenback and in trade-weighted terms since the RBA board met just four weeks ago.
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