RBA Preview: Pause in rate cuts until 2020
|- Australian central bank to pause its rate-cut cycle.
- Inflation and employment improved just modestly in Q3.
- AUD/USD likely to extend gains on a less-dovish tone from Governor Lowe.
The Reserve Bank of Australia is scheduled to have a monetary policy meeting this Tuesday and is expected to refrain from moving rates after cutting the official rate for the third time this year last October, to a record low of 0.75%.
Gentle turning point
The RBA has suggested mid-year that it could go all the way to zero with rates, if the economy required so, but the ultra-dovish stance changed last month, when Governor Philip Lowe hinted that the market should not count on further cuts, as he said that the economy seems to have reached a “gentle turning point.” Anyway, it’s also true that pushing rates lower would weigh consumption lower rather than stimulate the economy. Tempered expectations for more action coming from Australian policymaker alongside broad US dollar’s weakness has helped the AUD to reach fresh three-month highs by the end of October.
Inflation and unemployment are the figures the central bank is looking for when it comes to deciding a monetary policy move. Regarding the first, Q3 inflation posted a 1.7% annual growth, somehow encouraging, although RBA’s preferred measure, the trimmed-mean CPI, came in at 0.4% during the same quarter, with the annualised rate at 1.6%, still below the central bank’s target of 2% to 3%.
In the jobs’ market, the unemployment rate fell in September to 5.2 from 5.3%, the first decline in seven months, falling short of signalling a solid recovery in the sector, but at least moving in the right direction.
About growth, the RBA is seeing Gross Domestic Product returning to trend levels over the next few years, eventually underpinning employment and inflation.
All that said, the RBA is not going to shift to hawkish, but will likely easy the dovish stance while maintaining rates on-hold.
AUD/USD Technical Outlook
The AUD/USD pair is consolidating just above the neckline of a double bottom figure clear in the weekly chart. Nevertheless, it still can´t confirm a bullish continuation, with the market now waiting for the RBA.
Bullish in the daily chart, a critical resistance comes at 0.6960, where it has the 200 DMA, with scope to extend gains toward 0.7000 once beyond it. Below 0.6880, the pair would come under further selling pressure, with the next supports at 0.6840 and 0.6800.
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