RBA: Utopia by 2020 - TDS

Annette Beacher, Chief Asia-Pacific Macro Strategist at TD Securities, notes that the RBA delivered an as-expected upbeat outlook for the global economy and constructive view on the domestic economy.

Key Quotes

“On Tuesday the Bank already explained why near-term inflation is expected to be lower (underlying Dec 2019 lowered from 2 to 1¾%) while the optimistic mid-2019 GDP forecast of 3½% was shaved back to a more realistic 3¼% - now matching the Bank's rhetoric that GDP is likely to be "a bit above 3% this year and next".”

“Core inflation is expected to gradually lift above 2% by 2020, unchanged from May.”

“The unemployment rate is expected to gradually ease to full-employment 5% by end-2020, also as announced Tuesday.”

“The language around the exchange rate was little changed, being within the "recent range of the past two years". The Bank noted that the TWI pickup was largely due to the fall in the CNY (27.5% of the index).”

“Rates and FX have barely moved given that the bulk of the Bank's message was either unchanged or pre-announced.”

“Nov ’18 OIS is flat to cash at 1.5%, while May 2019 is 20% priced for +25bp. This is fair pricing for now. We stick with a May hike until wages and inflation materially disappoint.”