AUD After Weak Q1 CPI Inflation - Nomura
Charles St-Arnaud, Research Analyst at Nomura, notes that the Australian
CPI inflation came in weaker than expected, showing moderating
inflation, especially domestically.
“This has increased the likelihood that the Reserve Bank of Australia (RBA) will cut rates in the near future with the market now pricing in about a 50% chance of a cut at next week’s policy meeting. As a result, AUD has depreciated significantly so far today (about 1.8%).
The high likelihood of a rate cut next week will mean that AUD is likely to continue to remain on the back foot going into the RBA meeting. If the RBA cuts rates, AUD is likely to depreciate. However, if it stays on hold and there are signs that the fiscal stimulus will be sufficient to prevent a rate cut, AUD may rally significantly.
In the medium term, we continue to view that AUD is more likely to depreciate, as iron prices are at risk of a correction. This means that, if the RBA stays on hold next week and signals that rates are likely to remain unchanged, we would recommend investors use the bounce higher in AUD as a better entry point for entering a short AUD position.”