• Not much expected from the RBA this week, other themes in play.
  • Geopolitical risk is heating up between the US and Australia. 

 The Reserve Bank Board meets on May 5 ahead of the Statement on Monetary Policy (SoMP) which will print later on in the week on May 8. 

However, it is highly unlikely that the RBA acts to shift its policy at this meeting while content with current settings. Instead, markets will be looking for various forecasts made in the statement to then be elaborated upon in the SoMP.

The RBA has its dual objectives of full employment and its 2–3% inflation target and the central bank will be maintaining its tapering path amid an improvement in financial conditions. As revealed in a recent speech by Governor Lowe, when he addressed the RBA's central forecasts, the RBA is unlikely to be inclined to raise rates for a prolonged period.

We forecast that the RBA would hold the cash rate steady at 0.25% out to at least December 2023,

–  analysts at Westpac argued. The analysts were noting that the Governor is indicating that marked progress towards full employment (4.5%) would need to be achieved before the cash rate would be increased – "our timeline of “not before December 2023” seems quite realistic."

Additionally, ...

we also noted that central banks no longer see the need to be as “pre-emptive” as they were in previous cycles with ample evidence that inflation is slow moving precluding the risk that the central bank will find itself well 'behind the curve',

– the analysts at Westpac explained. 

COVID-19 is a highly fluid situation

Across the world, the virus and the countermeasures against it are creating a massive shock and the risk is that nations seeking to open their businesses too soon or fas stand the risk of a second wave of new cases and outbreaks. This is a highly fluid situation and the RBA will need to keep some in reserve before unloading all of its ammunition to battle against a potential economic meltdown.

SoMP on the cards

What could be more interesting is this week's SoMP as the attention will likely focus on how the recovery is expected to unfold. We should get various scenarios from the central bank which will expand on the economic outlook in Tuesday’s post Board meeting statement. 

Key data coming up

Meanwhile, we will also get the first concrete pieces of the Q1 GDP puzzle for Australia with the release of both Retail Sales and the Trade Balance this week. Preliminary reads on key economic data were subsequently released by the ABS and looked robust. 

ANZ job ads seems set to show another big drop. The jump in the number of people applying for the Jobseeker payment is consistent with a sharp rise in unemployment in Q2.  We think job losses will likely be front-loaded given the nature of the economic shock. The ABS releases another of its Weekly Payroll Jobs and Wages updates,

– analysts at ANZ Bank predict.

How will AUD react to the RBA?

There are other forces now in play pertaining to the Chinese and US cold war. The trade wars had been the dominant theme in markets before a so-called phase 1 deal was agreed upon at the end of last year, but that was before the virus hit. In recent weeks, the US administration has been vocal of their district in the Chinse reporting of not only numbers of cases and the true extent of the virus in China, but also that it covered it up, to begin with. Taking the latest headlines into consideration, it is hardly the perfect setting for AUD to prosper:

The RBA will need to be uber-confident that green pastures lay ahead for the economy. Pertaining to COVID-19, the RBA’s central scenario looks for restrictions to be “progressively lessened as we get closer to the middle of the year and mostly removed by late in the year”. However, on that basis, we have already known the key points from the Governor, namely:

  • A 10% output contraction in 2020 H1;
  • 6% contraction through 2020; 6–7% growth in 2021;
  • Unemployment rate holding “above 6% for the next couple of years” after peaking at 10% mid-2020.
  • Peak unemployment rate of 10% in June; and negative through the year headline inflation to the June quarter 2020.
  • Wages growth is expected to fall below 2% year, and underlying inflation will remain “below 2% year for the next couple of years”.

Variance in those one way or another could lead to some price action but the precise details will likely be saved until the SoMP. Until broader themes will be at play and likely weigh on the commodity complex and the Aussie: 

Specifically for AUD/USD, there are a couple of themes in the play, including weakness in CNH at the start the week. More on that here: AUD/USD Price Analysis: Heavy below 0.6400 on confirming short-term rising wedge amid Yuan’s drop

Given, however, Australia's scorecard as far as the virus goes, it makes for a bullish setting when comparing government balance sheets between the US and America. That may help to alleviate some pressures going forward unless there is another market shock for which would send the US dollar higher. However, if bearish fundamentals continue to play out, the following chart offers a potential scenario for the 0.6228/80 zone as the first port of call. 




Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news

Latest Forex Analysis

Latest Forex Analysis

Editors’ Picks

EUR/USD remains bid and approaches 1.1650 after US data

The persevering selling pressure in the greenback helps EUR/USD advancing to the area of daily highs near 1.1650 on Friday. The data from the US showed on Friday that the economic activity in the private sector continued to expand at a robust pace in early October.


GBP/USD treads water near 1.3800 after mixed UK data

GBP/USD came under bearish pressure in the early European session after the data from the UK showed an unexpected contraction in September Retail Sales. However, the British pound managed to pare its losses with the Markit PMI figures surpassing analysts' estimates.


GBP/USD treads water near 1.3800 after mixed UK data

GBP/USD came under bearish pressure in the early European session after the data from the UK showed an unexpected contraction in September Retail Sales. However, the British pound managed to pare its losses with the Markit PMI figures surpassing analysts' estimates.


Crypto bulls unfazed by flash crash

BTC closed more than 5% lower on the Thursday session, but buyers have stepped in to hold the Tenkan-Sen as support. ETH action shows that the recent rejection has caused some indecision. XRP does not have far to move to initiate a massive bullish breakout.

Read more

Apple talks over battery supplies for EV stall-Reuters

Apple (AAPL) is on a steady move higher ahead of results next week. We have had solid earnings from big names already such as Tesla (TSLA) and Netflix (NFLX), but Apple is the biggest one of all and will be the highlight of the earnings season for many.

Read more