RBA Cuts Rates Further
The Reserve Bank of Australia lowered its headline interest rate by a further 25 basis points overnight. The official cash rate in Australia now stands at a record low of .050%. The reduction was well signalled and follows recent comments from governor Lowe explaining the likely need for further monetary easing. This latest rate cut marks the third such reduction in a five-month period and clearly highlights the RBA’s concern for the health of the domestic economy.
In the statement released alongside the decision, Lowe noted that although the “outlook for the global economy remains reasonable, the risks are tilted to the downside” as a result of ongoing US – Sino trade disputes. In consideration of this environment, Lowe explained that it would be “reasonable to expect that an extended period of low-interest rates will be required”.
In reaction to Lowe’s dovish comments, AUD came under offer. The sell-off continued with Lowe saying that the RBA is “prepared to ease monetary policy further” as recent economic activity in Australia has been “weaker than expected”. These comments refer to the latest GDP growth data which showed a rise of just 1.4% in the twelve months to June, the lowest rate of economic growth since 2009.
The outlook for the economy is troubled, headlined by the recent increase in the unemployment rate which rose from 5% to 5.3% with inflation at just 1.6% as of the August reading. Given this situation, the market is broadly looking for at least one further rate cut this year. Which would take the headline cash rate down to lows of just .50%.
However, Lowe’s own projections struck a more optimistic note. The RBA governor noted that “The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, signs of stabilisation in some established housing markets and a brighter outlook for the resources sector should all support growth,”
Further Easing Expected
Despite the headline optimism, however, Lowe did illuminate the downside risks facing the economy saying: “employment growth is likely to slow from its recent fast rate”. The RBA governor went on to say that “wages growth remains subduedand there is little upward pressure at present…“The main domestic uncertainty continues to be the outlook for consumption, with the sustained period of only modest increases in household disposable income continuing to weigh on consumer spending.”
In line with a broadly dovish statement, AUD has been heavily sold as traders anticipate further rate cuts to come. As we have seen in Japan and Europe however, the RBA has been criticised by some for loosening monetary policy again with some questioning the effectiveness of continued rate cuts.
Technical & Trade Views
AUDUSD (Bearish below .6662)
AUDUSD From a technical and trading perspective. The market remains heavy, moving further below the monthly pivot at .6776. With longer-term VWAP remaining bearish I am looking for a fresh breakdown here with a move below the yearly S1 at .6662 next. Given this is a long term support level, I will be watching price to see if we get a retest opportunity to set shorts on reversal candles.
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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!