Low inflation may force the RBA’s hand in May


The downside miss on inflation in Australia probably forces the RBA’s hand to cut rates.  The RBA generally doesn’t fuss too much with appearances once it changes its mind, so a cut at its next policy meeting as soon as 7 May is likely, even though it would come only weeks before the Federal election on 18 May.

One cut is unlikely to be viewed as significant enough to make a material difference on the inflation outlook, so a second cut is likely before the dust has had time to settle on the first, so within the next Month (4 June) or two (2 July).

The risk is high that a rate cut watch in Australia dominates near term AUD price action and triggers a further significant fall in the currency.

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