RBA's SoMP does little to stop the Aussie sliding in Asia
|Update
The Reserve Bank of Australia has been in focus today and the latest event occurred with the release of the RBA's Monetary Policy statement.
The key takeaway of the forecasts are as follows:
Unemployment 5% end 2021, 4.25% end 2022, 4% end 2023.
Gross Domestic Product 4% end 2021, 4.25% end 2022, 2.5% end 2023.
Trimmed mean inflation 1.75% end 2021, 1.75% end 2022, 2.25% end 2023.
Wage growth 2.25% end 2021, 2.5% end 2022, 2.75% end 2023.
AUD/USD continues to move lower following the comments from earlier in the governor Phillip Lowe's appearance before the House of Representatives Standing Committee on Economics.
AUD/USD is done 0.2% on the day so far.
About the SoMP
The RBA Monetary Policy Statement released by the Reserve bank of Australia reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth.
It is considered as a clear guide to the future RBA interest rate policy. Any changes in this report affect the AUD volatility. If the RBA statement shows a hawkish outlook, that is seen as positive (or bullish) for the AUD, while a dovish outlook is seen as negatvie (or bearish).
Traders are getting set for the Reserve Bank of Australia today that will publish its August Statement on Monetary Policy.
End of update
The focus will be on the Bank’s updated forecasts in light of the recent lockdowns where otherwise, the RBA surprised markets with a hawkish hold and stood pat tapering timings despite the risks of the virus.
Meanwhile, traders can tune into Governor Phillip Lowe's appearance before the House of Representatives Standing Committee on Economics here.
Key comments
- Expecting return to string growth next year.
- The economy has bounced back faster.
- Delta variant COVID-19 outbreaks risk and RBA ready to act if need be.
- The economy is expected to bounce back quickly when restrictions end.
- The RBA expects wages and core inflation to remain subdued.
- The RBA's stimulus is providing substantial support.
Full comments
- The economy has bounced quicker than forecast.
- The labour market recovery has been most remarkable.
- Recovery has been interrupted by outbreaks of the highly infectious delta strain of the Coronavirus, especially in new south wales.
- Says at the board's meeting earlier this week we considered the case for delaying this tapering to $4 billion a week.
- GDP is likely to decline in the September quarter
- Says we are expecting a return to strong growth next year.
- How large the decline will depend on the duration of the lockdowns and whether there are. Further material outbreaks elsewhere in Australia in the weeks ahead.
- Says any additional bond purchases would have their maximum effect at that time and only a Very small effect right now when the extra support is needed most.
- Says we will, however, keep the situation under review and are prepared to act in response to further bad news on the health front.
- Says the board will not be increasing the cash rate until inflation is sustainably in the 2 to 3 per cent range.
- Sgnificant parts of the Australian economy are still on the positive trajectory that was in place before the recent outbreaks.
- Says under the central scenario, the condition we have set for an increase in the cash rate is not expected to be met before 2024.
- Sur central scenario is that the economy will return to strong growth in 2022.
- central scenario sees GDP increasing by a little over 4 per cent in 2022, to be followed by growth of around 2½ per cent in 2023.
- One source of uncertainty is the possibility of vaccine-resistant virus strains emerging over time.
- Another source of uncertainty is that it is still unclear what type of adjustments our society will have to make to live with covid on an ongoing basis.
- It is possible the Australian economy will again experience a run of positive surprises, as it did earlier this year.
- If we are successful in containing the virus over the months ahead, it is possible there will be stronger upswings in both investment and consumption.
- It will take some time for inflation to be sustainably in the 2 to 3 per cent target range
- In our central scenario, both wages growth and underlying inflation pick up, but do so only gradually.
- The central forecast is for underlying inflation to be 1¾ per cent over 2022 and then 2¼ per cent over 2023.
- Growth in the wage price index is expected to pick up gradually to 2¾ per cent over 2023
- eighteen months on, there are now plausible scenarios in which the cash rate is increased over a 3-year horizon, which now runs until late 2024.
- Given this shift, the board decided that it was not appropriate to extend the yield target to the end of 2024.
AUD reaction
AUD/USD is mostly unchanged on the comments as the markets have priced in the RBA already following the recent hawkish hold.
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