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🏦🇦🇺Cable FX Macro Weekly Note: RBA May Cash Rate Decision

**As seen in Risk In The Week report 05/05/24, subscribe at

The RBA left its Cash Rate target at 4.35% in March, this was in line with economists' expectations. We looked at details in the communication, as the central bank had previously said it could not rule out interest rate increases in February. The board said services inflation remains elevated while it noted positive developments in wage growth, these are moving in line with the inflation target. RBA Governor Bullock repeated that the central bank is not confident enough to rule out further rate hikes, she added that they need to get more confidence to consider rate cuts. On the economy, the RBA believes it will deliver a soft landing, Bullock mentioned risks being finely balanced. Q1 inflation figures were released recently, the trimmed mean CPI rose 1.0% on the quarter vs expectations of 0.8%, and headline inflation advanced 3.6% Y/y, the RBA believes inflation will end the year at 3.2%.

The latest inflation data supports MUFG's view of the RBA holding rates steady longer than the rest of the G10, while the market expects other central banks to start easing as soon as the summer. MUFG sees the RBA delivering a rate cut in Q4, however, Cash Rate futures imply no rate changes this year. Economists at MUFG noted a resilient labour market as the unemployment rate has increased marginally since October, while the Australian economy has added 29.2K jobs per month over the last six months. Economists at NAB expect the 1Q jobs report confirming an overall softening in the labor market as supply exceeds demand and the unemployment rate rises, the consensus expects a rise of 3/10s of a % to 4.3%. If this forecast is met, NAB noted that it would overshoot the RBNZ's February MPS projection of 4.2%. NAB also warned that there is a risk of an undershooting in wages, the LCI private sector all salary and wage rates are expected to print at 3.7%.



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