The Reserve Bank of Australia Board has its regular monthly meeting this Tuesday and most analysts expect it to leave the official cash rate unchanged at 2.50% for the 10th straight meeting. On balance, the current weakness in some data will be viewed by the RBA as temporary and therefore will be reluctant to cut rates again. Conversely, the still fragile consumer sector and the clear cooling off now underway in the housing market makes it difficult to see the RBA contemplating a rate rise any time soon. I expect the governor's accompanying statement to retain similar commentary to the last few months, that "the current accommodative stance of policy is likely to be appropriate for some time yet".
However, there are signs emerging that may have the RBA concerned, specifically the soft retail sales data and sharp pull-back in consumer sentiment following the May Federal Budget, which is failing to recover. This is in addition to the strong Australian Dollar which is up almost a cent since the RBA’s June meeting and above 94 cents despite commodity prices (especially iron ore) falling.
This has resulted in financial markets increasing the possibility of a rate cut (yes, you read it right) by February but also deferring any rate hike till late next year (refer chart below).