Breaking: RBA Lowe says economy still passing through “gentle turning point” for the better
Reserve Bank of Australia's Governor Philip Lowe is speaking on “The Year Ahead” at the National Press Club, Sydney today.
Markets are looking for further clarification since the RBS's rate decision yesterday and surprise optimism about the economic outlook which lifted AUD crosses through stops, triggering a huge bid in the Aussie.
Lowe said on Wednesday that Australia's central bank would see a strong case for cutting its benchmark interest rate from current record lows if the unemployment rate moved higher and there was no progress in lifting inflation. However, the RBA says that the economy is still passing through “gentle turning point” for the better.
Casting minds back, the unemployment rate eased to 5.1% in December while the latest data showed inflation had ticked higher, implying there was no urgency to lower rates and the central bank subsequently left its cash rate at 0.75% at its first meeting of the year on Tuesday in what was a rather surprisingly upbeat assessment of the economic outlook.
Key comments
- Says economy still passing through "gentle turning point" for the better.
- Says board continues to discuss merits of further monetary stimulus.
- Board balancing risks of further cuts vs costs of very low rates.
- Would see "stronger case" for easing if unemployment trends higher, inflation stays low.
- Recent inflation, jobs data show things moving in right direction, if gradually.
- Says rates already very low, policy has long and variable lags.
- Further rate cuts would have effect on a$, boost demand for exports.
- Says rate cut would help households adjust to high debt levels.
- But have concerns about effect of very low rates on resource allocation.
- Says risk low rates could encourage borrowing when home prices already rising.
- Aware of risk of too much borrowing driving excessive asset valuations.
- Will continue to watch borrowing, in particular, very carefully.
- Says bushfires to cut gdp growth by around 0.2 pct points across this quarter and last.
- GDP growth for 2020 as a whole will be largely unaffected by bushfires.
- Says too early to tell what overall impact of coronavirus will be, watching closely.
- Low rates make it easier for public, business sectors to contemplate long-term investments.
FX implications
AUD/USD has given back a little ground here, but the details are much of the same markets price in from yesterday's statement. There is a support structure in 0.6707 in AUD/USD to target following the 28th Jan range's 61.8% Fibonacci retracement target being hit on the RBA.
As for AUD/JPY, which is a keen focus considering the coronavirus, a re-run of 72 the figure at the next breakdown in fickle sentiment could be on the cards. For now, the bulls eye a correction back to the 74 handle to complete a 38.2% Fibo retracement. A 50% mean reversion opens the mid-point of the 74 handle.
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