The combination of Greek referendum uncertainty, Chinese equity volatility and renewed weakness in commodities have made offshore factors the most significant drivers of local markets over the last week, despite a Reserve Bank board meeting and the release of the latest employment data here.
There was no surprise in the RBA’s decision to keep the official cash rate unchanged at 2.00% at their July Board Meeting. The post meeting statement was largely the same as last month with only a few minor tweaks including the comment that the RBA is unsure of whether it has done enough to return growth to trend. The RBA reiterated that “information…received over the period ahead will inform the Board’s assessment of the outlook and whether the current stance of policy will most effectively foster sustainable growth and inflation consistent with the target”. That’s not sufficient to constitute a formal easing bias, but it’s an admission that the risks remain to the downside.
The March quarter CPI data (released 22 July) is the next major data release for RBA policy deliberations. The common view remains that the RBA will keep the cash rate unchanged at 2.00% over the forecast horizon. But, while the RBA maintains an implied bias the risks still lie with a lower cash rate.
Focus however will continue to be on developments offshore with a solid rebound in markets predicted if the Greek reform proposal is accepted by its creditors and/or the Chinese stock market continues to improve. Conversely, we could be in for another wild ride this week should either of these events not occur. A final decision on Greece remains just out of reach. With issues of trust and compliance being a prime concern, Euro group finance ministers on Sunday have given Greece three days to pass new austerity measures through parliament before a deal can be finalised.
With all this uncertainty, financial markets have increased the possibility of another RBA rate cut before the end of the year to over 50% with a full rate cut priced in by March 2016.