RBA: What to expect tomorrow
Australia is under strain. To be specific, it is under COVID-19 strain from the delta variant. In essence, the trouble is that the delta variant is highly transmissible, but the vaccination rate of the nation is low. According to Our World in Data Australia has only fully vaccinated 14% of its population. So, Australia has been forced into trying to contain the virus rather than live with it as the UK has done.
Last week Australia’s New South Wales Premier confirmed a four-week extension for the lockdown in Sydney. The Premier also says they will tighten COVID-19 lockdown rules in worst impacted areas of Sydney, while NSW reports 239 locally transmitted cases vs prev. 177. The delta variant appears to be around 60% more transmissible, so there is nothing that Australia can do to hold back this situation. The only possible solution would be an ultra-fast vaccine rollout, but that is not an option right now.
What this means for the RBA?
In short, the RBA now face the prospect of keeping rates lower for longer as well as expectations that they will actually increase their asset purchases. Westpac see that the RBA may now increase their tapering levels to $6 billion per week and CBA have pushed back their RBA rate hike forecast to May 2023 from late 2022 citing lockdowns.
So what?
At the start of July GBPAUD longs made sense on this simple diverging outlook between the handling of COVID-19 in the UK vs Australia. Now there is a similar bias for AUDCAD shorts. There is a case for selling AUDCAD into the RBA meeting, but the risk of course is that the RBA have a more hawkish response. However, it is hard where they might possibly find any optimism from to take that course of action.
Author
Giles Coghlan LLB, Lth, MA
Financial Source
Giles is the chief market analyst for Financial Source. His goal is to help you find simple, high-conviction fundamental trade opportunities. He has regular media presentations being featured in National and International Press.
