RBA SoMP: Board prepared to ease policy further if needed, Aussie back below 0.6900

RBA quarterly Statement on Monetary Policy is out and dovish.
RBA left Cash rate unchanged at a record low of 0.75% on Tuesday.

Dhwani Mehta FXStreet

The Reserve Bank of Australia (RBA) is out with its quarterly Statement on Monetary Policy (SoMP) on Friday, with the key highlights found below.

Board prepared to ease policy further if needed.

Holding rates in Nov "allows time to assess the effects" of past easing, global events.

Board mindful rates very low, further cuts bring closer "other policy options".

RBA aware further easing could convey "overly negative" view of economic outlook.

Global financial markets appear to have passed a "trough of pessimism".

The Australian economy is "gradually coming out of a soft patch".

Lower rates support the economy via lower a$, higher asset prices, boost to household incomes.

RBA forecasts GDP for Dec 2019 trimmed to 2.25%, Dec 2020 stays at 2.75%, Dec 2021 3%.

RBA trimmed mean inflation forecasts unchanged at 1.5% Dec 2019, 1.75% Dec 2020, 2% Dec 2021

RBA unemployment forecasts unchanged at 5.25% dec 2019, 5.25% dec 2020, 5% dec 2021

RBA forecasts made with technical assumption of "some chance" of 25 bps rate cut by mid-2020.

Wage growth is low and "no longer expected to pick up".

Rba forecasts wage price index growth at annual 2.3% out to end 2021.

Faster wage growth needed to meet 2-3% inflation target.

"increasingly clear" that lower unemployment needed to generate wage growth.

Drought to weigh on rural exports, farm incomes longer than previously thought.

Turnaround in housing market has come sooner and faster than expected.

Uncertain how quickly turnaround in home prices will feed through to construction.

About the SoMP

The RBA Monetary Policy Statement released by the Reserve bank of Australia reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. It is considered as a clear guide to the future RBA interest rate policy. Any changes in this report affect the AUD volatility. If the RBA statement shows a hawkish outlook, that is seen as positive (or bullish) for the AUD, while a dovish outlook is seen as negatvie (or bearish).

FX implication

On the statement release, the Aussie came under fresh selling pressure and ticked about 10-pips lower to trade at 0.6895, having failed the renewed uptick at 0.6908. The spot attempted the 0.69 handle again pre-SoMP release on the latest trade-positive comments by a White House spokesman.

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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