4 Jul 2013
Flash: September Fed meeting signals tapering commencement? – Westpac
FXstreet.com (New York) - According to Sean Callow, a Global FX Strategist at Westpac, “The AUD slide in Q2 has encouraged markets to reduce pricing for further RBA cash rate cuts.”
However, the next move is still firmly expected to be another cut, currently priced in full by the November meeting. Westpac looks for the next easing to come in Q3 (probably August, after the Q2 CPI), with a further two 25bp cuts to a 2% cash rate by Q1 2014.
“The Fed seems increasingly likely to commence it’s much discussed tapering of the pace of QE from the 17-18 September FOMC meeting.” Callow adds. Given that the current $85bn monthly pace of asset purchases is even faster than QE2 (when recovery was more fragile) and given Fed forecasts, it seems reasonable to expand the balance sheet less rapidly some time before end-2013. However, markets responded sharply to the June FOMC meeting, which hinted at a policy change in coming months. Further volatility seems assured.
However, the next move is still firmly expected to be another cut, currently priced in full by the November meeting. Westpac looks for the next easing to come in Q3 (probably August, after the Q2 CPI), with a further two 25bp cuts to a 2% cash rate by Q1 2014.
“The Fed seems increasingly likely to commence it’s much discussed tapering of the pace of QE from the 17-18 September FOMC meeting.” Callow adds. Given that the current $85bn monthly pace of asset purchases is even faster than QE2 (when recovery was more fragile) and given Fed forecasts, it seems reasonable to expand the balance sheet less rapidly some time before end-2013. However, markets responded sharply to the June FOMC meeting, which hinted at a policy change in coming months. Further volatility seems assured.