RBA: Next RBA Move Depends On Data Increasing Its Confidence
Apr-01 05:34
A rate cut wasn’t discussed this week but the Board looked at downside risks to growth and inflation. It was a consensus decision. The economy is “broadly” developing in line with the RBA’s outlook. As inflation pressures remain, it will wait for more information to see if it adds to its confidence that underlying inflation is moving sustainably towards the mid-point of the target band. With greater confidence, the Board can consider the timing of further easing.
- Governor Bullock noted that neither she nor the Board have made up their minds re the May meeting. If the updated staff forecasts and upcoming data, including Q1 CPI and two labour market prints, make it “more confident” that inflation is sustainably returning to the band then it will consider another rate cut. It remains more cautious than market pricing implies and the May projections will determine if that view persists.
- Bullock reminded us that Australia doesn’t have as much restrictiveness to remove as others.
- There were a lot of questions regarding US tariffs given the imminent announcement. Governor Bullock noted that Australia is unlikely to have a material direct impact given its small exposure to the US but how its main trading partners & supply chains are affected, notably China, and retaliatory measures are areas of concern. China’s focus on its 5% growth target and related stimulus should mean the effect on Australia is minimal, thus the Board has time to watch and wait.
- The RBA is well positioned to react with rates and the currency will also provide a buffer, which usually happens with lower commodity prices and global growth. A prolonged trade war would reduce global activity which would be a problem for Australia.
- While the impact on inflation is unclear, the RBA will continue to focus on containing inflation as uncontrolled inflation drives higher unemployment.
- Central banks will be looking for a price level shift from tariffs that becomes ingrained in inflation.
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US OUTLOOK/OPINION: A Stacked Week Ahead For US Macro
Feb-28 21:45
- Next week sees a series a key risk points, starting with trade policy and Trump’s Mar 4 deadline for an additional 10% tariffs on China (for 20% total) and the imposition of the delayed 25% tariffs on Canada and Mexico. US Treasury Sec Bessent offered a potential offramp here, saying Friday afternoon the US wants to see Canada and Mexico match tariffs on China. Whilst following through with that could see temporary de-escalation in US trade tensions with Canada and Mexico, it would likely stoke greater likelihood of China retaliation and/or further fiscal support.
- It’s bookended by ISM manufacturing (Mon) and services (Wed) reports, watched to see whether sharp increases in manufacturing prices paid seen in other surveys first show up in this broader measure and whether there is sign of spillover to services.
- The main data release of the week comes on Friday though, with the nonfarm payrolls report for February.
- The January report saw a modest miss for nonfarm payrolls but it was more than offset by a robust two-month net revision along with a smaller than expected benchmark revision. Further, the unemployment rate again surprised lower at 4.0% for its lowest since May 2024 in a further step away from the 4.3% the median FOMC member forecast for 4Q25 in the December SEP.
- Early days for the Bloomberg survey see nonfarm payrolls growth at a seasonally adjusted 155k in February and for the unemployment rate to hold at that lower 4.0%.
- Note that the nature of the DOGE “deferred resignation program”, with some 77k federal employees accepting the offer, shouldn’t see any direct impact on payrolls growth (in the establishment survey) until the October report as workers will remain on the payroll in the interim. One area where the direct impact could show however is the household survey. Assuming those who accepted the offer are treated as equivalent to a furloughed worker, they’ll register as unemployed. A word of caution though, it’s a much more volatile survey, with a 90% confidence level of +-600k for employment vs +-136k for payrolls.
- Note that post-payrolls Fedspeak sees a notable addition this time, with Fed Chair Powell set to talk on the economic outlook with both text and Q&A, starting at 1230ET. Data and tariff deliberations should still set the tone, but at this juncture we wouldn’t be surprised to see a continued call for patience in rate cut expectations considering dovish repricing seen over the past week. This is a theme that could be seen from other notable Fedspeakers throughout the week, including permanent voters Williams, Waller and Kugler.
STIR: Significant Dovish Repricing In US Rates This Week
Feb-28 21:14
- The softer growth outlook has dominated signs of renewed inflationary pressures this week - see a key summary of the week's macro developments in the MNI US Macro Weekly here.
- Fed Funds futures have a next 25bp Fed cut now fully priced for June and over the week have added nearly an entire 25bp cut over 2025 with a cumulative 70bp of cuts vs the 50bp implied by the median FOMC dot in Dec.
Significant dovish adjustment over the week:
MACRO ANALYSIS: MNI US Macro Weekly: No Escaping Tariff Distortions
Feb-28 21:12
- We have published and e-mailed to subscribers the MNI US Macro Weekly offering succinct MNI analysis across the range of macro developments over the past week.
- Please find the full report here: https://media.marketnews.com/US_macro_weekly_250228_3f0cf485bb.pdf
