RBA rate decision preview

Reserve Bank of Australia (RBA) will announce its monetary policy decisions tomorrow at 4:30 GMT.

Economy at a glance -

• Economy is growing at 2.5% YoY compared to 4.3% in early 2012.
• Unemployment rate has ticked up from below 6% last year to 6.3% as of now.
• Interest rate is at 2.25%
• Inflation rate after rising to 3% by mid-2014, has fallen to 1.7% as of now.
• Terms of trade has deteriorated to worst level since 2009.

Moreover Australian economy continue to face headwinds from weakening growth prospect in China and lower price of its export commodities. Iron ore, which contributes to 20% of the country's export and 4% of GDP is now fallen below $50/ton.

RBA stance -

• RBA is clearly on path of monetary policy easing. In previous statements it has clearly indicated its worries about domestic economy and vowed for further policy easing if required.
  
  
• RBA has clearly indicated that Australian dollar remains quite overvalued and feels falling exchange rate to benefit the economy and balance the risks.

Expectation tomorrow -

• Economists surveyed by Bloomberg, expects RBA to keep rates on hold, however expects it lower rates by at least 25 basis points this year. Nevertheless possibilities of a rate cut remains at large.

Market impact -

• Australian dollar currently trading at 0.764 against dollar is up from 0.753 after weaker NFP.
  
  
• It might stage larger correction, should rates remain on hold. However upsides are limited against dollar and would be guided by broad based dollar strength.
  
  
• Any rate cut would cause havoc to the downside as policy hold is expected.