RBA Preview - July 2020: Nothing To See Here

MNI Point of View:

The upcoming meeting is set to be a pretty vanilla affair, with universal expectations for the Reserve Bank of Australia (RBA) to leave its monetary policy settings unchanged. Rhetoric from the Bank, most recently from Deputy Governor Guy Debelle, has reinforced the idea that the Bank remains comfortable with its monetary policy settings and the reaction of market forces to the Bank's foray into unconventional monetary policy (for example the cash rate trading well through target owing to excess liquidity), although it stands ready to do more, if needed.

All in all, the Bank has pointed to a less downbeat view of the domestic economy when compared to what it provided just a few short months ago, while it continues to point to the risks to the recovery.

Scenario Analysis:

Base Case: No change in monetary policy settings and the central line of rhetoric, which should reflect a glass halffull approach and a willingness to do more, if needed, accompanied by steady forward guidance. There will likely be a reference to risks surrounding the COVID-19 situation in Melbourne.

Dovish Case: Any comment regarding the level of the AUD would likely result in a dovish reaction, although, as we have explained above, this should be viewed as an unlikely outcome. Any sense of heightened worry re: the virus situation in Melbourne (although very unlikely at the stage) could also present a dovish risk.

Hawkish Case: Hard to pinpoint a potential hawkish outcome given the COVID-19 backdrop, perhaps a slightly more upbeat view on some of the more timely labour market data/a modest relief rally in AUD if the level of the currency is not mentioned in the statement provide some potential sources of a "hawkish" outcome.

Click here for the full RBA Preview or see attached below:

RBA_Review_-_July_2020.pdf