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Forex Flash: RBA to stay dovish despite strong data - Standard Chartered

6/7/2012 10:00:00 PM
Referenced Stocks:RBA (Barcelona) - No matter if Australia delivered a much stronger-than-expected GDP in Q1-2012 or also blew best expectations yesterday after the jobs report, according to Kelvin Lau and Callum Henderson, Research Analysts at Standard Chartered, the GDP headline number masked underlying imbalances in domestic growth between mining and non-mining sectors, and between domestic consumption and exports.

The Analysts said: "The external backdrop has clearly deteriorated since Q1, led by recession and crisis in Europe and a slowing China. Australia is likely to be a key beneficiary of China's impending policy stimulus and rate cuts. Before the positive effects kick in, however, the looming risk of a Greek euro exit and potential regional and global contagion warrants a dovish and nimble RBA stance, in our view."

Kelvin and Callum added: "We revise our cash rate forecasts after the 25bps cut by the Reserve Bank of Australia ( RBA ) on 5 June. The cut was in line with market expectations, but given the dovish tone in the accompanying statement, we now expect the RBA to cut by another 50bps in Q3-2012 before staying on hold through mid-2013. We now see the tightening cycle starting in Q3-2013 at the earliest, versus our earlier forecast of Q1-2013."