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RBA Forecast: Three Scenarios and Their Implications for AUD/USD – TDS

TD Securities economists analyze the Reserve Bank of Australia's (RBA) interest rate decision and its implications for the AUD/USD pair.

Moderate: (5%)

The Bank would have to change its orientation and eliminate its soft restrictive bias. But the RBA does not have data to support a moderate change. Furthermore, markets and central banks are pushing against imminent rate cuts, so why would the RBA turn dovish? AUD/USD -0.8%.

Base case: Neutral (75%)

With GDP in line with RBA expectations and signs of persistent inflation abroad, the Bank has no pressing need to flip the script. Guidance should therefore remain unchanged and the Bank should reiterate the following: 1) inflation is moderating but remains high; 2) the outlook is uncertain, and 3) the priority is to get inflation back on target. AUD/USD +0.2%.

Hardline: (20%)

The Bank has already indicated that it may have to tighten its monetary policy further. After softening its aggressive bias last month compared to December 2013, we see no compelling argument for the Bank to become more aggressive again. AUD/USD +0.6%.

Source: Fx Street

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