FX: RBA December 2019 Preview

*RBA to leave rates unchanged, unlikely to surprise
*Risks lean dovish given labour fundamentals
*Short bias for announcement in AUDUSD, AUDNZD


The cash rate decision from the RBA December meeting will be announced at 2.30pm AEDTDecember 3 2019

What's expected? 

The RBA is widely expected to stay on hold for its Dec. meeting with market pricing suggesting a ~92% likelihood that the cash target rate remains the same at 0.75%, or alternatively, an ~8% chance the we see the RBA cut by 25bps.

RBA won't surprise

RBA Gov. Lowe noted in his most recent speech on unconventional monetary policy that "at the moment, [Australia] is expected to progress towards its [growth and inflation] goals over the next couple of years". A gradual return to trend growth and inflation, in addition to, November's upbeat housing data should limit any surprises when a decision is released.

Furthermore, the Board will also want to preserve the few rate cuts it has left given 0.25% has been quoted as the effective lower bound of Aussie rates. Consequently, there appears strong reasoning for the Board to maintain a wait-and-see attitude allowing previous rate cuts and tax rebates to continue working their way through the economy. 

But dovish risks evident

On the other hand, there remains plenty of scope for moderate dovishness from AUD traders. We catch GDP growth at 11.30am AEDT on Wednesday. The Board tends not to pre-judge this data but it already looks like it could print below RBA 2019 expectations. Combine that with lingering concerns around Nov. employment figures and spare capacity in the labour market, and all of a sudden, a preferred rate cut in February 2020 doesn't seem outrageous. However, it's worth flagging that fiscal policy might supplant interest rate cutting as a better means for achieving the RBA's desired outcomes.


Given market pricing has all but confirmed a rate hold and fundamentals are tilting more dovish, I think positioning for a move to the downside (as oppose to the upside) in AUDUSD and AUDNZD is more appropriate. That is, if indeed RBA Gov. Lowe surprises. 

Spot: 0.6819
Upside pivot: 200d-MA 0.6883 (+64pips)
Downside pivot: 50d-MA 0.6806 (-13pips), Dec. lows 0.6755 (-64pips)
Overnight AUDUSD implied volatility: 9.87% - translates to a 0.62% one standard deviation or 68% confidence move.