On hold, waiting for the AUD to fall more: HSBC's Paul Bloxham

The RBA's cash rate was left unchanged at 2.00%, as expected. The post-meeting statement repeated much of the mantra of recent months, noting that a lower AUD was both 'likely and necessary' and that there are on-going concerns about Sydney's strong dwelling price rises. China and Greece barely rated a mention.

The tone of the description of the local economy was slightly more positive, as they noted that the unemployment rate remained 'little changed recently'. There was no explicit guidance about the future path of monetary policy, with the RBA seemingly content to wait and watch and hope for a lower AUD. We expect the cash rate to be on hold in coming quarters.

Facts

- The cash rate was held steady at 2.00% (as expected by all 27 economists in the Bloomberg survey). The market was pricing a 10% chance of cut just prior to the announcement.

Implications

The RBA announcement and statement had few surprises with the statement providing no explicit guidance about the future path of monetary policy. The central bank was content to, once again, end its comments by stating the obvious, that: 'information on economic and financial conditions to be received over the period ahead will inform the Board's assessment of the outlook and hence whether the current stance of policy'.

Developments in Greece and the Chinese stock market barely rated a mention. Although the board is likely to have received a full briefing on both, the significant uncertainty about how the situations will play out and what they might mean for the macro-economy mean they are still part of the RBA's distribution of risks rather than part of any central forecast.

Having delivered 50bp of cuts in the first half, we expect the RBA to be quite patient as they wait and watch to see the impact of these cuts on the economy. It is also clear that the RBA is hoping that the AUD will fall further and that this will be mechanism which loosens financial conditions, rather than them needing to cut rates and potentially push Sydney housing prices even higher.

Recent falls in the AUD will no doubt be welcome, although today's statement suggests more falls are desired. Our own assessment is that the RBA would be more comfortable with the AUD around 68-70 US cents (currently 75 US cents). 

Paul Bloxham is chief economist Australia and New Zealand for HSBC.