RBA unlikely to deliver hawkish tone in line with other central banks, says ANZ Research

Following the surprising tilts from the European Central Bank, the Bank of England, and the Bank of Canada (BoC) last week, the market is on the hunt for more hawkish central bank surprises. However, the Reserve Bank of Australia (RBA) is not expected to satiate them. The economy is still running at levels just above stall speed and the recent improvement in employment will not be enough to prompt a shift in bias.

The AUD has rallied in sympathy with this view over the past couple of sessions, and has stalled just below its key resistance levels making tomorrow’s RBA meeting a bigger event in the FX market than would have been anticipated just a week ago.

Further, the degree of slack in the Australian economy gives the RBA time, and the starting point, while historically low, is also well above that of the other central banks. The BoE and ECB are starting from a point of unconventional policy, while the BoC is starting with a policy rate of just 0.5 percent, a full percentage point below that of Australia.

"Tomorrow, we do expect that the RBA will tweak its language to account for the better data that we have seen in the labour force, and today’s solid ANZ job ad’s report will add to the Bank’s confidence. However, we continue to think that the Bank is some distance from connecting the improvement in the labour market to a more confident statement on wages – a necessary step before it changes its bias," ANZ research commented in its latest report.

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