Flash: RBA easing cycle not over, AUD should remain under pressure - Nomura

FXstreet.com (Barcelona) - Following the victory of Mr. Abbot as new Australian Prime Minister, the fiscal deficit in the country is now expected to be reduced more than under the Labor party, notes Nomura Economist Martin Whetton, who thinks this may lead to a greater amount of fiscal drag on the economy against previous expectations following the release of the budget in May.

Key Quotes

"The increased fiscal drag implied by the Coalition could mean that the RBA is likely to need to keep monetary policy accommodative longer and may even require further rate cuts to compensate the headwind on growth."

"The decisive victory and the promise of abolishing the mining and carbon tax are likely to be well received by the market and could result in a rally in the AUD into the opening."

"However, the basic economic fundamentals have not changed, that is, the slowing of resource investment and below trend growth. This means that the AUD should remain under pressure."