In line with our expectation, the Reserve Bank of Australia (RBA) left its official cash rate unchanged at 1.5% for the 29th consecutive monetary meeting. The last time the RBA cut the official cash rate was in August 2016 by 25 basis points (bps). The RBA maintained its neutral policy bias.

We believe the RBA is under strong pressure to end the pause as consumers spending are crawling down dragged by the property downturn that ate into their household wealth. With a slight change in the wording by the RBA i.e. “the central bank will set monetary policy to support sustainable growth in the economy” it has opened the door for an easing bias. So, in our view, the RBA appears to be closer to cutting rates than it did a month ago.

• In line with our expectation, the Reserve Bank of Australia (RBA) left its official cash rate unchanged at 1.5% for the 29th consecutive monetary meeting. The last time the RBA cut the official cash rate was in August 2016 by 25 basis points (bps). The RBA maintained its neutral policy bias.
• The RBA pointed out that growth in household consumption is being affected by the “protracted period of weakness in real household disposable income and the adjustment in housing markets,” while drought is also hurting farm output. And, negating these factors are the higher levels of spending on public infrastructure and an upswing in private investment which appeared to be supporting the growth outlook with a steady growth in employment.
• We believe the RBA is under strong pressure to end the pause as consumers spending are crawling down dragged by the property downturn that ate into their household wealth. The government is set to present tax cuts and cash handouts in tonight’s budget to help consumers who are caught between stagnant wages and rising debt burden. We believe the government is hoping it will help secure enough support for the May election.

• With a slight change in the wording by the RBA i.e. “the central bank will set monetary policy to support sustainable growth in the economy” as opposed to the earlier statement “the central bank is keeping policy unchanged which us consistent with sustainable growth” opens the door for an easing bias. So, in our view, the RBA appears to be closer to cutting rates than it did a month ago.

• In the meantime, the AUD is more likely to trade around 0.71 – 0.72 against the USD in 1H2019 with risk still tilted to the downside. By the end of 2019, the AUD should reach around 0.74 partly due to a weaker dollar. Against the MYR, we expect the pair to trade range-bound for the remaining of 2019, between 2.87 – 2.97.

Source: AmInvest Research - 3 Apr 2019