MUFG Research discusses AUD outlook heading into next week's RBA policy meeting.
"Our hunch is that not cutting would be a mistake and merely delaying the inevitable. In a world of major central banks reviewing monetary policy frameworks due to persistent failures to hit inflation goals as nominal rates fall to zero percent, the RBA should not hesitate in cutting given the global risks. The coronavirus is just one global risk, but trade uncertainties are likely to persist and the unemployment rate may need to fall to 4.5% to lift inflation," MUFG notes.
"So we see plenty of reason for the RBA cutting on 4th Feb. So from a risk-reward perspective given how little is priced for a rate cut on 4th February we see greater potential for AUD downside from here over the short-term despite the drop we had on Monday," MUFG adds.