RBA Governor Stevens will testify on monetary policy on Friday and Barclays Capital thinks he will likely argue that the abrupt change in the RBA’s policy stance from neutral forward guidance in December to a rate cut in February was justified by a downgrade to the economic outlook.

"We think he will argue that the RBA saw scope to provide additional support to demand given relatively low inflation. He may also note that other central banks have recently eased policy and argue that the currency remains overvalued," Barclays projects.

"We believe he will acknowledge that a new record low cash rate could boost rapidly rising house prices, but argue that the RBA and APRA are looking at options to keep things under control. The Governor is generally optimistic, but we think the overall tone will be dovish, raising the prospect of a further rate cut. That said, we do not think he will give much away in terms of timing and we continue to look for the next cut to come in May when the RBA next updates its outlook," Barclays adds.

Given this outlook, Barclays expect any bounce in the AUD to be limited even if other major currencies were to extent their recent rally.

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