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RBA lower inflation and growth forecasts

Today RBA were the latest Central Bank to lower expectations, cutting their inflation and GDP forecasts through to 2016 and reitterating that further rate cuts may be on the table.





The chart on the left shows inflation forecasts which have been lowered again and now expect it to dip below the 2% band by the end of this year. Whilst they see a recovery by mid-June they expect to it remain around the middle of the 2-3% band through to 2018. I often look at Central Bank forecasts and wonder if they really believe it themselves, as it all seems a bit convenient to land right in the middle of their pawn target and remain there for a full year.

GDP growth has also been revised lower to 2.25% in December (down from 2.5%) where it will sit between 2-3% throughout 2016. I cannot help but be a little sceptical.... Time will tell. 

On the plus side RBA expect unemployment to remain around current levels before heading back below 6% in 2017 (so they think unemployment has peaked). SO if we do see unemployment rise above the multi-year high of 6.4% we know this is another figure which is likely to be revised over the coming months. 

Domestic Conditions:
- There is further evidence that activity is rebalancing away from the resources sector toward non-resources sectors, particularly services
- Very low interest rates continue to support growth in dwelling investment and consumption.
- The depreciation of the exchange rate has supported exports. 



Technically the Aussie is pretty much behaving as one would expect on Nonfarm Payroll day; Non-comital and awaiting the US data dump for it to dictate its next directional move. 

However I suspect that the Aussie will struggle to return to fully-blown trend mode looking at the plethora of support and resistance levels which currently surround it. D1 is currently supported by the 50 day MA but we have a clear range between 0.7125 and 0.7170 which needs to be broken, where we then get to decide between the bullish or bearish 'internal trendline'. So for me AUDUSD is one to look at next week when if the technical picture becomes a little clearer because at time of writing, it could break either direction then promptly return to no-man’s land. 

 



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