People walk past the Reserve Bank of Australia in  Sydney. The RBA is likely to cut interest rates for a second time this year today as a salve for a painfully strong local currency and pallid business investment.

Reuters
Sydney


Australia’s central bank is likely to cut interest rates for a second time this year today as a salve for a painfully high local currency and pallid business investment.
A Reuters poll of 27 analysts found 20 expected the Reserve Bank of Australia (RBA) to cut rates to 2%, while interbank futures imply around a 64% probability of that move.
Data out yesterday showed how the current record low RBA cash rate of 2.25% was working to heal the economy as approvals to build new homes climbed to an all-time high in March.
Approvals in the multi-unit sector were up no less than 59% on a year ago, a spur for household spending as well as a boon for construction jobs.
Indeed, a survey from ANZ showed job advertisements rose to their highest in two and a half year in April, echoing recent strength in the official employment series. Yet neither was there any sign that inflation would be a barrier to a further easing in policy.
The TD Securities-Melbourne Institute measure of consumer prices revealed domestically-driven inflation had slowed to its lowest in at least a decade, a notable shift in what has been a stubbornly high sector.
While the RBA confounded expectations for cuts in March and April, the stars seem better aligned this time in large part due to the recent strengthening in the local dollar.  
The currency touched a three-month top above 80 cents last week as a run of soft US data delivered a setback to speculation the Federal Reserve would start raising its rates as early as June.
The rise was especially unwelcome as prices for iron ore, Australia’s single biggest export earner, had halved to under $60 a tonne in a blow to company profits and tax revenues.
The impact on government finances will be all too evident when Treasurer Joe Hockey delivers his 2015-16 Budget next week, with deficits likely out to the end of the decade.
The slide in resource prices also darkened an already bleak outlook for mining investment, while other sectors showed little sign of taking up the slack.  
Minutes of the RBA’s April meeting showed the Board had been warned that business spending might even fall this year, a marked deterioration from previous months.
That shift led Westpac’s chief economist, Bill Evans, to predict the RBA would again trim forecasts for economic growth when it releases a quarterly policy outlook on May 8.
“If we are right and the board has decided to cut its growth forecast in 2015 and 2016, then a decision not to cut rates would seem particularly bizarre,” said Evans.  He assumes an easing would the last of this cycle, but would not rule out further action if needed.
“We do not see that, in a developed world of negative to zero rates, 2% should be seen as a rate floor.”