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RBI policy: MPC unlikely to change stance to 'accommodative', says JPMorgan's Jahangir Aziz

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All eyes are on the Reserve Bank of India’s first monetary policy decision for FY20. Jahangir Aziz, head of EM economic research at JPMorgan, shared his expectations.

“We had been expecting a significant easing since December last year. We got one cut already done, we expect another cut this week and then followed by at least one more cut in the next round,” Aziz told CNBC-TV18.

With regards to a change in the RBI’s stance, Aziz said, “You are making way too much about the wording of the forward guidance being provided by the wording of the monetary policy committee (MPC). Most likely they will probably maintain a neutral language because moving to an accommodative stance would mean giving expectations to the market that there will be significantly more rate cuts coming down the road. My sense is that the MPC will not want to take that risk of providing that kind of an indication to the market.”

“I think it will provide forward guidance that there are no rate cuts to come but it is not the beginning of a significantly long easing cycle,” said Aziz.

AUD/USD buyers can take some comfort but rebound is hardly convincing so far

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The pair came close to testing the January flash crash low this week with price hitting 0.6748, just shy of the low at 0.6742. That said, the daily closes we're experiencing are the lowest since the financial crisis back in 2009.

However, buyers can take some comfort from the fact that price is rebounding a little towards 0.6800 currently today. That should put an end to the poor run of form in the pair over the past two weeks or so.

I mean price did close by one pip higher last Friday but I wouldn't count that as a real win considering the circumstances.
Price is still unable to find a way back above 0.6800 and the 100-hour MA (red line) @ 0.6811 is still not breached. That means sellers are still in near-term control of the pair.

The turnaround in risk today will ultimately prove to be short-lived if US-China trade tensions continue to escalate and as the RBA looks towards more rate cuts before the year-end, it's hard to see Australian yields sustain at current levels for much longer.

Of note, 10-year yields survived a brief drop below the RBA cash rate of 1.00% earlier today but there will be more troubling days ahead. The dark clouds from US-China trade tensions continue to preside over markets and pair that alongside lower rates will continue to see yields suffer in the bigger picture.

With AUD/USD being largely a yields story over the past two years, that doesn't bode well for the pair to maintain any solid upside momentum.

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