Home Artikel Market News RBA Hold Rates With Cautious Outlook. Why Will Happen To AUD?

RBA Hold Rates With Cautious Outlook. Why Will Happen To AUD?

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August RBA Meeting

At their August meeting, the Reserve Bank of Australia left monetary policy unchanged. The Cash Rate remained at its record low of 0.25%, and the 3yr yield target remained at 25 basis points.

The RBA struck an overall cautious tone with the dominant focus for the central bank remaining on the coronavirus outbreak – the greatest risk to Australia’s economic outlook.

The RBA painted a bleak picture for the months ahead, predicting the jobless rate would rise to around 10% by year-end, and the unemployment rate would remain elevated at around 7%. As of June’s report, the unemployment rate sits at a 22-year high of 7.4%.

Additionally, the central bank forecasts a 6% drop in GDP over 2020, and given the country’s spare capacity, the RBA expects inflation to undershoot its 2-3% target for the next two years.

Summarising their overall outlook, RBA Governor Lowe stated: “The Australian economy is going through a very difficult period and is experiencing the biggest contraction since the 1930s. As difficult as this is, the downturn is not as severe as earlier expected, and a recovery is now underway in most of Australia. 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.”

Coronavirus Update

On Sunday, Victoria declared a ‘state of disaster with the country’s strictest restrictions on movement already in effect. In a further effort to contain its outbreak, Victoria announced on Monday that from Wednesday, Melbourne – Australia’s second-largest city – will enter a six-week lockdown with retail, some manufacturing and administrative businesses all closing.

With Victoria accounting for around 25% of Australian GDP, the outbreak in the state has significantly dented hopes of a speedy economic recovery. This was recently explained by Citi, who stated: ‘Victoria’s return to hard lockdown changes everything‚Ķ (and) presents a significant risk of Victoria dragging down growth in national activity data in the last two months of Q3. We could also see negative confidence impacts drag on data in other states, particularly as other states have used the rise in Victorian COVID-19 cases to defer opening their borders or sought to tighten access to some states?

What will happen to the AUD currency?

All in all, with unemployment likely to remain elevated and inflation depressed for the foreseeable future, monetary policy is likely to remain highly accommodative for a significant period of time. Furthermore, with the coronavirus posing significant downside risks to the economy, further easing in the months and quarters ahead remains a distinct possibility.

Of AUD’s three dominant drivers – monetary policy outlook, economic outlook, overall risk outlook – the risks are firmly to the downside for both monetary policy and the economy. As such, in risk-off environments, AUD is likely to make an ideal currency to short in the near-term.

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