RBA CUTS RATES TO 1.50%

As widely expected including ours, the RBA on the back of a low inflation print for the June quarter cut rates to 1.50% at the August meeting last week. We believe that the bank will retain the easing bias until it re-balances the inflation target band to below the current target band of between 2% to 3%. 

CURRENCY likely to fall on usd gain on jobs data

Stronger than expected growth in US jobs data in July contributed to the strength of the US Dollar as the market went into speculation for an increase in the US rates by Governor Yellen. However we need to be cautious here as the US Federal Reserve cited the weak global economic outlook as the reason to maintain its current monetary policy and nothing has really changed in the global context which would indicate a rebound of the global economy. Most of the advanced economies have weak growth forecasts and it is unlikely that the Fed will raise rates purely based on the JUly jobs data. 

FORECASTS UNCHANGED IN RBA SOMP

Going back to domestic economy, the RBA released its August statement of monetary policy which indicated no change in economic forecasts. The growth forecasts have been retained at 3% for 2016 and 2017 and 3.5% now extending to the whole of 2018.
Here's a snapshot of the key domestic economic outlook contained within the Statement of Monetary Policy:
GDP growth: 2016/17: 2.5%-3.5%, 2017/18: 2.5% - 3.5%
CPI: 2016/2017: 1.5% - 2.5%, 2017/2018: 1.5% - 2.5% (Same for underlying inflation)

MARKET DATA

​
Australia Cash rate
Australia 90 day bank bill
Australia 10 y bond
US 10y Govt bond
AUD/USD
AUD/EUR
AUD/JPY
AUD/CNY
ASX 200
S&P 500
Dow Jones Industrial Average
Shanghai Composite
Brent Oil (USD per BBL)
Gold Spot (USD per oz)
Iron Ore

As at 5-Aug
1.50
1.79
1.96
1.59
0.7660
0.6877
77.40
5.0902
5,497
2,182
18,543
2,976
44.27
1,332
60.74

As at 29-Jul
1.75
1.87
1.87
1.45
0.7522
0.6790
77.94
5.0045
5,562
2,173
18,432
2,979
43.53
1,351
60.70