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Asia Morning: RBA And The Race (To Zero) That Stops The Nation

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Fundamental analysis of Forex market

RBA expected to keep rates on hold

The Aussie domestic economy is in a better and more encouraging shape since the October meeting with full-time employment and consumer inflation data steadying. Gov. Lowe on several occasions also noted that “negative rates are extraordinarily unlikely”. The RBA’s decision at 2.30pm AEDT is therefore highly likely to deliver a hold in line with market expectations.

However, as we explain in our SPECIAL REPORT: Ahead Of RBA November, the variance to watch will be in the RBA’s forward guidance if given. As it stands in the 30d Interbank Futures market, participants aren’t even considering a cut till Feb 2020 with Dec. 2019 pricing in 6bps of easing while Feb. 2020 is displaying double that in 12bps of easing. Also look out for any mention of unconventional monetary policy down the track.

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First Tuesday in November

The first Tuesday in November carries two special events: the RBA and Melbourne Cup. We assess AUDUSD price action on daily bars on the previous five first Tuesdays in November. Interestingly while the RBA have eschewed from altering the Cash Target Rate, they’ve also managed to still draw considerable ranges. We think the daily range seen on Nov 6, 2018 (44pips) most likely plays out given ON implied volatility suggests a 58pip one standard deviation daily move, and remain bullish on AUDUSD in the medium-term.

Westpac falls at open

Banks are going through a rough time at the moment with Westpac (WBC.AX) the latest casualty to the challenging low growth, low rate environment. What was uttered by Westpac CEO Hartzer was a familiar line seen from other banking leaders in that “2019 has been a disappointing year”. Westpac’s earnings took a dive while the final dividend was cut to 80c, down 15%. The company also undertook a A$2.5bn ($2bn) capital raising to enhance its flexibility around future remediation, regulatory and litigation needs. Westpac have opened ~4.6% lower on the ASX while other major banks in CBA.AX, ANZ.AX and NAB.AX remain marginally up.

The chart below shows that in 2019, the Big 4 Aussie banks have significantly under-performed against the ASX. 1) ASX return = 18.8%; 2) NAB return = 15.8%; 3) ANZ, CBA and WBC return = 5.8% to 7.3%.