David Goodman, Research Analyst at Westpac, notes that the May RBA minutes repeated the mantra that the likely â€œnext move in the cash rate would be up, rather than downâ€ and introduced a new notion that holding the cash rate steady would provide â€œa source of stability and confidenceâ€.
â€œRBAâ€™s Debelle spoke this week and highlighted the risk stemming from low wages growth. He acknowledged the apparent global flattening of Phillips curves, while locally the â€œmajority of firms surveyed in the Bank's liaison program expect wages growth to remain broadly stable over the period aheadâ€. So long as this remains the case, it is hard to see where wages pressures will come from.â€
â€œWith Governor Lowe outlining the difficulty in achieving the Bankâ€™s inflation target with wages growth of 2%, the WPI is shaping up as the key data series to watch.â€
â€œUnchanged rates may indeed be a virtue, but as yield spreads continue to move decisively in USDâ€™s favour, and the Australian economy struggles to generate either wage and inflation pressures or above trend growth, we are comfortable with our multi month bearish AUD/USD view. This should also cap near term rallies.â€