SHORT AUDUSD: RBA INTEREST RATE DECISION - CUT 25BPS TO 1.50%

RBA Cut the Cash rate to 1.50% by 25bps, the market has had a very subdued reaction though, barely falling 30pips from market. I still think there should be more downside here and into the mid/low 74xx before the full fade comes in - so luckily room for retails to get in, looks like the algos were having a day off today.

This is positive for any kiwi$ short holders - this now puts almost certain pressure on RBNZ to do the same (if not 50bps) next week.

Previously Aussie$ fell 180pips back in May 3rd on a 25bps cut like this, and the next day lost 40pips so a total of 210pips in 2days, 0.766 to 0.745 - assuming this model holds true this time we should then expect AUD$ to trade to 0.737 in 2-days given we started at 0.758. Thus the 0.744/5 target I have should be modest but inline with the subdued market reaction (TPs further to the LHS run the risk of being faded out unreached). We could/ should see some more selling through LDN/ NY as real money gets on board - unlikely to stay in the 0.75's for today (or close here imo).

RBA Interest Rate Decision Highlights:

-AUSTRALIA AUG RBA CASH RATE* DECREASE TO 1.50 % (FCAST 1.50 %) VS PREV 1.75 %
-RBA SAYS RISING A$ COULD COMPLICATE ECONOMIC TRANSITION
-RBA SAYS JUDGED ECONOMIC GROWTH WOULD BE IMPROVED BY EASING
-RBA SAYS GLOBAL ECONOMY GROWING AT A PACE BELOW AVERAGE
-RBA SAYS RECENT AUSTRALIAN DATA SUGGESTS OVERALL GROWTH CONTINUING AT A MODERATE PACE
-RBA SAYS UNDERLYING PACE OF GROWTH IN CHINA ECONOMY APPEARS TO BE MODERATING
-RBA SAYS RECENT DATA CONFIRMS INFLATION REMAINS QUITE LOW, EXPECTED TO REMAIN CASE FOR SOME TIME
-RBA SAYS LESS RISK OF LOW RATES OVERHEATING HOUSING MARKET
-RBA SAYS LABOUR MARKET DATA CONTINUE TO BE SOMEWHAT MIXED

Comment:

UPDATED

1. Check Main body above for updated views on the AUD$ situation now.

Comment:

UPDATE:

1. Note the response is definitely less aggressive than previous cuts - only 60pips were priced yesterday so there is still room for 100-150 more from here (if the may cut is anything to go by).

- LDN/ NY selling may be saving grace but even at 1.5% Aussie still remains no.2 G10 best stop for carry.

Comment:

UPDATE:

1. USD weakness seems to be rinsing this trade but by looking at the price action it should/ has to come back to mid 0.74s at some point - im thinking maybe NY spot will bring us into fairer levels once US markets open. Thats what happened last time on friday following BOJ which imo was underpriced massively - UJ should have been lower.

Comment:

UPDATE - HSBC House view, neutral-hawkish future path for RBA - reason the cut was so easily faded.

1. HSBC'€™S BLOXHAM ON THE RBA:

Although growth is holding up well, inflation is too low. The RBA noted that 'prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting'. The statement provided little forward guidance, beyond noting that inflation was expected to remain low for 'some time'.

- We expect the RBA to now spend the next few months noting that they are waiting to see the full effect of the 50bp of cuts that they have delivered this year. Looking further out, we see wages growth and local inflation gradually lifting, as the rebalancing act comes to its end (around mid-2017, in our view). We see the RBA on hold in coming quarters, rather than cutting further.