The Australian dollar is considerably lower in the Tuesday session. Currently, AUD/USD is trading at 0.7333, down 0.53% on the day.

Lowe confirms COVID-19 toll on economy

RBA Governor Philip Lowe confirmed that the Delta variant of Covid had caused significant damage to the economy. Lowe stated that the economy would contract in Q3, with the decline “likely to be at least two per cent, and possibly significantly larger than this”. Analysts have been warning about a sizeable decline, but Lowe’s stark assessment has soured investors on the Australian dollar on Tuesday. Lowe tried to put a positive spin on things, saying that he expected this “major setback” to be temporary and that the economy would grow in the fourth quarter and into 2022.

Lowe didn’t add anything new as far as policy. He said that the Bank would have a better idea in February of how the economy was responding to the easing of restrictions rather than in November, and would therefore wait until February to review the QE programme. Lowe reiterated that the Bank would not raise interest rates before 2024 from their record low of 0.10 per cent. Interestingly. Lowe admitted he couldn’t understand why the financial markets were much more hawkish and had priced in a cash rate of 0.25% by the end of 2022 and 1.0% by the end of 2024.

On Wednesday, we’ll get a look at the mood of Australian consumers, with the release of Westpac Consumer Sentiment for September. The August reading was dismal, coming in at -4.4%. The recent lockdowns may well have soured consumer confidence and we could see another decline, which would be bearish for the Australian dollar.

AUD/USD technical

  • There is resistance at 0.7433, followed by 0.7512.

  • The first line of support is at 0.7310, followed by 0.7266.

Chart

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities.

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