Original title: RBA customs clearance resolution this year, the probability of interest rate cut is slim? There is still room for relaxation, and a number of investment banks are betting on cutting interest rates in February next year.
The RBA will announce its last policy meeting of the year on Tuesday, which is expected to leave interest rates unchanged at a record low of 0.75%. While some economists believe there is already a case for the fourth consecutive rate cut since June, and consumers are happy to see it, it seems that policymakers are inclined to wait for a rate cut in February.
Australia's third-quarter GDP data, expected to be released on Wednesday, will warn of continued weakness in the market economy, weak consumer spending and investment are key factors in the Brexit economy, and Australia's third-quarter GDP is expected to record an annual rate of 1.6 per cent.
The market is betting that the RBA will cut interest rates in February next year.
Expectations that the RBA will cut interest rates further are rising amid uncertainty about the international trade situation and the poor performance of Australian economic data.
Mr Lowe, chairman of the RBA, said a few days ago that he did not expect Australia to have to use quantitative easing (QE), but if necessary, it would be in the form of government bonds, and would only be implemented if the target overnight lending rate was as low as 0.25%.
His remarks were interpreted as a minimum cut in interest rates to 0.25 per cent, below market expectations of 0.5 per cent. At present, interest rate futures have fully digested the possibility of cutting interest rates by 25 basis points to 0.5 per cent in April next year, suggesting that the probability of a cut to 0.25 per cent by the end of next year is more than 40 per cent.
Depressed economic data may force RBA to move towards QE policy
On Thursday, official Australian data showed that private capital spending fell for the third quarter in a row, prompting the Australian dollar to hit a new low of 0.6759 against the US dollar on October 17.
Australia's third-quarter GDP is expected to fall short of expectations this week and is now expected to rise 1.6 per cent because of sluggish personal demand. Against this backdrop, the Australian economy has driven upward momentum since mid-2018, with growth falling from 3.1 per cent to the current 1.4 per cent, the lowest level since 2009.
The RBA cut interest rates several times during the year, and the cut in personal income tax had an impact on the economy, but consumer spending remained weak, Australian real estate performance was uneven, prices rose, but construction permits remained weak.
Kim Mundy, a strategist at the Commonwealth Bank of Australia, said the Australian dollar fell further against the US dollar because of continued uncertainty in international trade and weaker-than-expected Australian economic data. Lower-than-expected economic growth will support expectations of further monetary easing by the RBA and is likely to continue to put pressure on the Australian dollar.
Sean Callow, a strategist at Westpac, said the RBA may further cut interest rates to 0.25% in June 2020 and begin quantitative easing in the second half of 2020.
After the Reserve Bank of Australia and the Federal Reserve of New Zealand cut interest rates separately in 2019, yields on the Australian and New Zealand dollars seem less attractive. But relatively speaking, the Australian dollar is doing well, although the Australian Federal Reserve's policy of quantitative easing will be very bad for the Australian dollar.
The AUD / USD is expected to remain in the range of 0.67-0.69.
In terms of the short-term outlook for the Australian dollar against the US dollar, the pair is expected to trade in a range of 0.67-0.69 in the next 1-2 weeks.
The exchange rate has established a downward trend in the past few weeks, as it is unable to break through the trend line resistance level of 0.6895, the 0.6670-90 area with three bottoms and the bullish reversal trend of the October monthly line, continuously exerting resistance on the exchange rate and keeping the midline down.
In the third and fourth quarters, midline momentum repeatedly failed to refresh new lows, this bullish trigger is only being pulled by the trend, the new midline off-line action can still prevail.
The exchange rate is expected to continue to fluctuate in the range of 0.67-0.69 over the next 1-2 weeks, but pressure expectations will also build up to force prices to fall to the bottom of that range, which will lead to a sustained downward trend if the weekly line closes below 0.6670.
Institutional viewpoint
Security Capital: the RBA should cut interest rates on Tuesday, but may not actually take action
Shane Oliver, chief economist at Security Capital, said the RBA should cut interest rates at its meeting on Tuesday, given a recent series of weak employment, retail sales, car sales, housing construction and business investment data.
As the next monetary policy meeting will not be held until February next year, the urgency of lowering interest rates has become even stronger. The RBA stressed this week that there is a growing risk that inflation expectations could deviate from the inflation target. But RBA Chairman John Lowe has made it clear that the next rate cut may be postponed until next year, so the RBA may not take action next week.
TD Securities: Reserve Bank of Australia's December decision is expected to stand still
The RBA will announce its December interest rate decision, and TD Securities expects it to leave its cash rate unchanged at 0.75%, with a 10% chance that the overnight swap rate will be cut by 25 basis points. The RBA is unlikely to cut interest rates, assuming that investment in GDP has been weak so far in the third quarter, but net exports and public spending are likely to rise slightly.
Even if all of it is factored in by the RBA's December decision, 30 per cent of GDP is unknown before Australia's third-quarter GDP data are released on Wednesday and does not provide a compelling reason for the RBA to move ahead and is expected to cut interest rates by 25 basis points in February 2020.
Westpac Bank: RBA is expected to cut interest rates twice and start QE in 2020
Westpac expects the RBA to cut interest rates twice next year, to 0.25% by June, and to start quantitative easing in the first half of 2020. Bill Evans, its chief economist, said the RBA would prefer to suspend interest rate cuts until the federal budget is announced in May.
The bank expects Australia's current 5.3 per cent unemployment rate to reach 5.6 per cent by March and remain at that level until the end of next year. Given that there is no significant progress in returning the unemployment rate to the 4.5 per cent level of full employment, the case for further stimulus measures will be strong.
Citigroup no longer expects the RBA to carry out quantitative easing next year, but still predicts that interest rates will be cut to 0.5%.
Josh Williamson, a senior economist at Citigroup in Sydney, said that given that the RBA believes that the actual lower limit of the cash rate target is 0.25%, Citigroup no longer expects the RBA to implement quantitative easing next year.
The bank maintains its forecast for the RBA to cut interest rates by 25 basis points to 0.5 per cent in February, but given that it is expected to stop cutting interest rates later, this means that the cash rate target will not reach 0.25 per cent, so it will not trigger one of the necessary conditions for the introduction of quantitative easing. If the RBA implements quantitative easing, it tends to buy government bonds, which is not in line with the advice of the Treasury.
Holland InternationalGroup: RBA still has room for easing, but it is expected to be difficult to cut interest rates in December
The RBA will announce its interest rate resolution in December, and ING pointed out that Australia's exceptionally weak employment performance in October provided a reason for the RBA to further implement loose monetary policy. in addition, RBA Chairman Lowe expressed his willingness to quantitative easing in his speech earlier this week, leading the market to expect further interest rate cuts.
However, most market participants doubt whether the RBA will cut interest rates, and current market pricing shows that there is only a 12% chance that the RBA will cut interest rates by 25 basis points in December. Australia's third-quarter GDP data, which showed stronger economic growth, will support the RBA's policy call for stability, but the data, released a day after the Fed's decision, are not timely information for policymakers.