The Australian dollar went into free fall after the RBA turned less hawkish:
TD Securities wraps the statement:
The RBA kept the cash rate on hold at 4.10% as was widely anticipated by the analyst and trading community. Of more interest for markets was the tone of the Bank’s commentary, in particular the last paragraph. As we expected, the Bank reiterated its conditional tightening bias noting “some further tightening of monetary policy may be required…”
As we detailed in Trading the RBA, retaining the conditional tightening bias made sense given: 1) inflation is still too high; 2) the labour market is tight; 3) wages growth has picked up and 4) services inflation remains elevated. Further, its central bank peers have a tightening bias.
Despite the conditional tightening bias, our sense was that it was diluted at the margin. While the Bank continues to focus on assessing the lagged impact of rate hikes delivered so far, we read a touch more emphasis on downside risks regarding the uncertainty around the economic outlook.
On the labour market, it’s no longer ‘very tight’, but ‘tight’. On growth the Bank reiterated its outlook for growth to be sub-trend, but based on data so far ‘growth has slowed’. Further, the Bank referred to increased uncertainty around the Chinese economy as a factor weighing on the outlook.
Aside from that we don’t think there is too much to say. On the Bank’s current forecast there is no pressing need for the RBA to hike given it states “the recent data are consistent with inflation returning to the 2-3 per cent target range over the forecast horizon….”. The fact that growth has slowed buys the RBA time.
Our read is the RBA will continue to assess the outlook for the cash rate meeting by meeting, but we don’t see the RBA in a rush to hike. We retain our call for no further RBA hikes but don’t rule out the possibility of an insurance hike in November after Q3 CPI is released in late October, or should inflation offshore resume its trek higher.
It was definitely a more dovish statement and the hawkish bias is more precautionary than real now.
The labour market is no longer “very tight”. It is loose with one in ten people in the country on a visa. It has not yet shown up in the official data but it will.
One CEO told me that last year he got 150 applications for a position and this year 550 for the same job.
I suspect there is some issue for the ABS capturing the foreign worker flood in the data, perhaps because it is coming so fast.
The next move from the RBA is to cut. It will lead the easing in the developed world given its higher inflation target, softer economy and imminently crushed wage growth.
Then there is the China bust which the RBA should be preparing the economy for. 2024 is not going to be kind for national income as commodities are routed. The last time that happened wage growth and inflation collapsed for seven years.
My AUD 4-handle forecast may arrive much quicker than expected…