Central Banks

RBA done with cuts now?

In the Reserve Bank of Australia rate meeting last week the interest rates were kept unchanged at 0.10% as expected. The RBA also maintained the 3yr bond yield target at 0.10% as expected too. The board also said that it was not expecting to raise rates for at least the next 3 years and is prepared to do more if needed. The Board recognised that fiscal and monetary support will be needed for some time. You can read the full statement here.

More optimistic tones emerging

The key takeaway here is that the Board also recognised that Australia’s economic recovery is underway and that the recent data was better than expected. This was reinforced by the better than expected GDP data later last week printing +3.3% q/q vs +2.5% expected. This optimistic tone was echoed by the Australian Treasurer Frydenberg who said that the recession is technically over and the economy is ‘coming back’.

The RBA’s assessment tends towards pessimism and caution. They are a central bank, so they need to plan for the worst. However, the advent of a vaccine and the fact that Australian households income went up (through Gov’t support) even while output went down means that people can spend. Yes, unemployment is still elevated, but a vaccine means that jobs should start appearing again for those looking for work. In balance this means a few things:

  1. The RBA is at the bottom of their rates. No further cuts.
  2. The bias is to the upside now for the AUD.
  3. The strong rise in commodities on global growth hopes should further support the Australian economy
  4. Rising wages and labour data will be key to confirming this more positive outlook.
  5. . Expect AUDUSD buyers on dips

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