RBA Preview: Rate cut and QE expansion to turbo-charge economic recovery


  • RBA Governor Lowe expressed concerns over higher Australian 10-year yields.
  • RBA seen cutting rates to a record low of 0.10%, expanding QE by A$100 billion.  
  • AUD/USD’s fate hinges on the extent of QE expansion, USD dynamics.

The Reserve Bank of Australia is expected to go all out with additional monetary policy easing this Tuesday, in an effort to turbo-charge the recovery from its coronavirus pandemic induced first recession in nearly three decades.

The RBA is likely to lower the Official Cash Rate (OCR) by 15bps to a new record low of 0.10% from the current 0.25%. The board members are also seen cutting their target for the yield on three-year government bonds to the same level.  An expansion of AUD100 billion to its government bond-buying program, quantitative easing (QE), is also due on the cards.

RBA to boost employment, lift-off pressure on AUD

The Australian central bank is set to roll out more stimulus and thereby, move towards achieving its objective of jobs growth, as the coronavirus situation in the South Pacific nation improves, with no new daily community infections reported off-late.

The minutes of the October 6 policy meeting revealed that the RBA board members “continue to consider how additional monetary easing could support jobs,” adding that “addressing the high rate of unemployment an important national priority.”

Additional easing by the RBA could help lift the business morale as well as the consumer spending ahead of Christmas and New Year festive season.

Further, the likely QE expansion could be in the wake of RBA Governor Phillip Lowe’s recent comments, expressing concerns over higher Australian 10-year bond yields longer-term when compared to its developed peers.

The RBA will ramp up its purchases of longer-dated government bonds, in order to stem the appreciation of the AUD and boost the export competitiveness.

AUD/USD possible scenarios

Fundamentally, the economy is on a gradual recovery path from the pandemic impact, in light of the government’s record Budget, improved business confidence and upbeat quarterly inflation. However, slowing labor market recovery and the AUD strength keep the RBA unnerved.

Heading into the RBA decision, the key focus for markets is the US election and the uncertainty surrounding the outcome, which lifts the haven demand for the US dollar while weighing on the risk assets such as the aussie. Meanwhile, surging coronavirus cases in Europe and the US also dampens the market mood.

Also, it's worth noting that RBA’s additional easing is already priced-in by the markets, reflective of the recent tumble in AUD/USD from near 0.7200 to sub-0.7000 levels. The price has breached the key ascending trendline support on the daily chart and therefore, a QE expansion of above AUD100 billion could further boost the AUD sellers, opening floors for a test of the 0.6900 level.

Alternatively, a run towards the critical resistance around 0.7080 cannot be ruled out on a smaller QE announcement and/ or if the risk tone improves and drags the greenback southwards.

 

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.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Analysis


Latest Forex Analysis

Editors’ Picks

AUD/USD: Upbeat China PMIs favor bulls near fresh three month high around 0.7400

AUD/USD remains positive after China’s activity data for November flashed welcome signs. November’s China NBS Manufacturing PMI, Aussie TD Securities Inflation flashed more than expected results. Market mood stays cautious optimistic amid vaccine hopes, Brexit jitters and Aussie-China tussle.

AUD/USD News

EUR/USD: Refreshes three-month high towards 1.2000, battles triangle resistance

EUR/USD eases from fresh high since September 01. The pair rose to the highest in three months before a few hours but couldn’t cross the upper line of a five-week-old ascending triangle formation. RSI conditions warrant caution, bears are less likely to take entries above 1.1870.

EUR/USD News

NZD/USD refreshes 2.5-year high on strong China PMI above 0.7400

NZD/USD rises to the fresh high since June 2018 after China data. China’s NBS Manufacturing PMI, Non-Manufacturing PMI beat market forecasts in November. ANZ Business Confidence, Activity Outlook also came in positive for November.

NZD/USD News

Gold: Trades below 200-day MA for first since March

Gold is trading below the widely-followed 200-day Simple Moving Average (SMA) for the first time since March. The metal is changing hands near $1,783 per ounce, representing a 0.25% loss on the day. 

Gold news

Black Friday 2020 Discounts!

Learn to trade with the best! Don't miss the most experienced traders and speakers in FXStreet Premium webinars. Also if you are a Premium member you can get real-time FXS Signals and receive daily market analysis with the best forex insights!

More info

Forex Majors

Cryptocurrencies

Signatures