RBA cuts and moves to neutral

May 5, 2015

The UK Bank Holiday made for a flat-line on most majors yesterday. We’re pretty much guaranteed more volatility for the remainder of the week. This will cumulate on Friday with the US employment report, where markets will be looking to see what extent the slowdown on headline payrolls seen in last month’s numbers what a blip or something more sustained. Ahead of that, we have the UK general election on Thursday, the result of which is the most uncertain for around forty years. This will mean that sterling could be particularly touchy on Friday, as the polls still suggest that no single party will have an overall majority (this is the exception rather than the rule in the UK). As usual, Greece is not far from the headlines, with the ECB due this week to make its next decision on its allocation of emergency liquidity assistance. There are signs that the IMF is becoming increasingly agitated at the whole process, especially as the fiscal situation deteriorates and a further bailout package would be needed to be negotiated fairly swiftly if the hurdles to the disbursement of the current one can be overcome.

For today, we’ve seen the RBA cut rates to 2.0%. The move was largely anticipated, but the statement moved to a more neutral bias on the outlook for rates, which saw the Aussie push up to 0.79 initially, to settle some net 20 pips higher vs. pre-decision levels. Their view of the currency remains broadly unchanged, re-iterating that “further depreciation is both likely and necessary”.

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