Rates Unchanged
At its August monetary policy meeting held overnight, the RBA kept interest rates on hold at record lows of 0.25%. The unchanged announcement was broadly expected though risks of a further rate cut were heightened after governor Lowe suggested last month that rates could be cut to as low as 0.10%.
Downturn Not As Bad As Expected
In the statement released along with the monetary policy decision, RBA governor Lowe noted that the domestic economy was undergoing its steepest contraction since the 1930s. However, the governor was also keen to highlight that the downturn was not as bad as initially projected and highlighted that the recovery is now underway.
Commenting on the outlook Lowe said: "This recovery is, however, likely to be both uneven and bumpy, with the coronavirus outbreak in Victoria having a major effect on the Victorian economy." The bank now forecasts that the Australian economy will contract by 6% over 2020 as a whole while the unemployment rate is forecast to increase to 10% by year end from the current 7.4%. Commenting on the expected increase in unemployment, Lowe said this was due to further job losses in Victoria and more people elsewhere in Australia looking for jobs." Beyond that, the RBA now forecasts the unemployment rate to fall back to around 7% over the next few years.
Additional Support Needed
In terms of additional support and further easing, Lowe noted that a great deal of stimulus (both monetary and fiscal) will be needed “for some time”. Commenting on the recent fiscal stimulus announced by the government, Lowe said: "The Australian Government's recent announcement that various income support measures will be extended is a welcome development and will support aggregate demand."With regard to forward guidance, Lowe said: "The board will not increase the cash rate target until progress us being made towards full employment and it is confident that inflation will be sustainable within the 2-3 per cent target band.” In terms of additional bond purchases Lowe noted: “Government bond markets are functioning normally alongside a significant increase in issuance. The yield has, however, been a little higher than 25 basis points over recent weeks. Given this, tomorrow the bank will purchase AGS in the secondary market to ensure that the yield on three-year bonds remains consistent with the target. Further purchases will be undertaken as necessary."
Technical Views
AUDJPY (Bullish above 76.56)
Having broken above the long-term rising trend line, and supported by the 50dma, the near term outlook in AUDJPY remains bullish here. Price currently held up by resistance at the 76.56 level but while price remains above the broken trend line, an eventual break above the level and a move up to the 78.74 level is the next objective for bulls.
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Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
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Patrick has been involved in the financial markets for well over a decade as a self-educated professional trader and money manager. Flitting between the roles of market commentator, analyst and mentor, Patrick has improved the technical skills and psychological stance of literally hundreds of traders – coaching them to become savvy market operators!