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Maintains A Firmer Tone


RBNZ Allows Space To Move Off Best Levels


Timeline of key events (Times BST)


Remains Firm Inside Its Bear Channel


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By Sophia Rodrigues
     SYDNEY (MNI) - The Reserve Bank of Australia is likely to leave the cash
rate unchanged at 1.5% again at its meeting on Tuesday but solid second quarter
growth and a strong labor market could prompt a more positive tone in its
     This could mean the market is still underpricing the risk the RBA might
raise the cash rate before the end of next year. Investors are pricing about a
40% chance of a 25bps hike by August 2019.
     The RBA is likely to retain its main message that it expects further
progress in reducing unemployment and returning inflation to target, and that
keeping monetary policy unchanged would be consistent with its mandate.
     But GDP growth in the second quarter was better than the RBA's forecast,
making officials more optimistic about future expansion.
     The RBA was also pleased with August labor market data published in
September, which was stronger all round although the jobless rate was unchanged
at 5.3%. Employment, the participation rate and full-time jobs all grew, and
underutilization fell. The RBA is already considering the prospect the
unemployment rate could fall to 5.0% earlier than it forecast in the August
Statement on Monetary Policy (SOMP), but may stop short of stating this in the
cash rate statement.
     Labor market and growth forecasts will be updated in the November SOMP and
there's a likelihood of upgrades to both.
     The RBA's commentary on global inflation should also be worth watching, and
may be tweaked to suggest it could accelerate. Rising oil prices might attract a
reference too.
     Commentary on global trade tensions and on China will likely remain
unchanged. Financial and economic emerging market risks might also be mentioned,
but none of these will affect the RBA's central scenario that gradual progress
in the economy should mean the next move in the cash rate is more likely to be
up, rather than down.
     Other parts of the statement should be little changed from September. The
RBA should reiterate that the average mortgage rate paid is lower than a year
ago and that conditions in Sydney and Melbourne housing markets have continued
to ease, reflecting its confidence that housing prices may not fall sharply.
     With no fresh prices data in the past month, the commentary on inflation is
likely to remain unaltered.
     The RBA might point to a household consumption rebound in the second
quarter but may also retain a reference to it as a source of uncertainty.
     The rate decision is due at 1430 hours local time.
--MNI Sydney Bureau; tel: +61 2-9716-5467; email:
[TOPICS: MMLRB$,M$A$$$,M$L$$$,MX$$$$]

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