The majority of pollsters are expecting the RBA to cut with only a few exceptions, more notably Citi and BofA. However, the big four in Australia are all anticipating the central bank to deliver its third rate cut this year tomorrow. The market pricing shows ~95% odds of a rate cut tomorrow with a total of ~78 bps of rate cuts priced in by year-end.
"We would prefer to see the RBA keep the cash rate unchanged in July and instead wait for the complete Q2 CPI data, updated staff activity forecasts and business liaison before cutting again. By waiting another five weeks to get more data and liaison evidence, the RBA would fulfil its preference to ‘move cautiously and predictably’ in lowering interest rates."
As for the RBNZ, it's a little more straightforward with markets pricing in ~81% odds of no change this week. In May, the central bank stated that market pricing would be a key driver to their decision making and so this will be a test of whether they will respect that. In any case, they will have another meeting in August soon enough and so waiting for a bit more data would be prudent.
Their recent communication on core inflation also seems more relaxed, so they're in a better spot to follow up with a pause this week before cutting once more by year-end.
This article was written by Justin Low at www.forexlive.com. Read More Details
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