RBA policymakers likely to begin groundwork for policy normalization by late 2019, says Scotiabank

The Reserve Bank of Australia(RBA) is expected to begin to laying the groundwork for policy normalization in late 2019, given that current market expectations are relatively muted, according to the latest research report from Scotiabank.

Governor Lowe is scheduled to deliver a pair of speeches ahead of the December 4 decision and the latest RBA minutes are likely to contain additional supportive commentary detailing the latest forecast revisions.

Australia’s domestic releases have generally been surprising to the upside, forcing a positive reassessment to the RBA’s outlook in its most recent forecast update for the November Statement on Monetary Policy.

GDP, wages, and inflation forecasts were all revised up and the unemployment rate forecast saw a downward revision with expectations for a fresh post-crisis low of 4.75 percent by the end of 2020.

Further, concerns relating to trade policy uncertainty have forced the RBA to maintain a neutral tone, communicating expectations for no near-term adjustments to the cash rate while guiding to higher interest rates 'at some point'.

The balance of risk appears to be shifting however as stronger than expected domestic data are compounded by the continued improvement in Australia’s terms of trade. Talk of possible policy stimulus in China poses additional upside risk for AUD, the report added.

"AUD technicals have shifted considerably and the AUD has broken out of its YTD descending trend channel. We highlight the potential for near-term gains toward the 200 day MA and 38.2 percent retracement in the mid-0.74s," the report added.