Having recently paused to analyze the success in combating the negative impacts of the coronavirus (COVID-19), the Reserve Bank of Australia (RBA) is up for conveying its latest monetary policy decision at 04:30 GMT on Tuesday.
While the Aussie central bank has already shown the intention to keep the interest rates near the record low of 0.25%, no major forecasts are supporting an increase in the Quantitative Easing (QE). However, recently upbeat rhetoric from Governor Philip Lowe and Deputy Governor Guy Debelle favor chances of upbeat comments in the RBA Rate Statement. Hence, AUD/USD traders remain cautiously optimistic as the quote seesaws near the monthly high ahead of the event.
Analysts at Westpac provide key details of the RBA’s fight against the virus and probable outcome:
The RBA is providing considerable stimulus to the economy through a range of policies and will continue to do so. Interest rates and policy settings will be unchanged in July. The key elements of the RBA's response to the pandemic are as follows. (1) Lowering the cash rate to 0.25%. (2) Targeting the 3-year government bond rate at 0.25%. (3) Market operations, as needed, to provide ample liquidity to the banking system. (4) A Term Funding Facility for the banking system providing 3-year funding at 0.25%. (5) Setting the rate paid on Exchange Settlement balances at the RBA at 10bps. The cash rate is set to remain at its current level for a very long time – we assess until at least the end of 2023 although the 3yr bond target rate will likely be lifted during 2022. In the statement text, there will be interest in commentary around Australia’s recovery and whether the sustained rebound in A$ is seen as worthy of mention.
TD Securities, on the other hand, expect no major surprises from the event:
There should be no surprises with the RBA keeping the cash rate on hold. The Bank is likely to reiterate it stands ready to provide liquidity as needed. This was backed by actions last month, the Bank injecting short term funds to offset the sizeable maturity of reverse repos in June. Expect significant liquidity over the coming months as the Term Funding Facility is drawn down.
How could the RBA decision affect AUD/USD?
Considering the AUD/USD pair’s latest run-up to multi-day high, traders are looking for any downbeat remarks to book the profits and wait for lower prices for fresh entry. However, policymakers are more likely to keep praising their efforts to tame the pandemic’s side-effects to favor the bulls, which in turn can restrict fresh downside.
As a result, traders should wait for a clear view of the Australian dollar’s recent performance by the RBA policymakers as fears over the spike can trim the bulls’ strength. However, an absence of any such clues, coupled with optimism in the rate statement, could keep the AUD/USD prices well directed towards 0.7000 threshold. It’s worth mentioning that any surprise announcements, either in the form of QE or the most unlikely interest rate change, could have severe reactions.
Technically, the AUD/USD pair’s ability to cross the mid-June top surrounding 0.6975 enables a pierce of the 0.7000 threshold. Though, the multi-month high of 0.7065, flashed on June 10, could challenge the quote’s further upside. Meanwhile, 21-day SMA near the 0.6905 level, followed by 0.6900 round-figures, will offer immediate support ahead of a three-week-old support line near the 0.6850.
Key quotes
AUD/USD: Bulls keep 0.7000 on radars ahead of RBA interest rate decision
AUD/USD Forecast: Waiting for RBA’s announcement
Reserve Bank of Australia Preview: Policymakers to remain cautiously optimistic
About the RBA interest rate decision
RBA Interest Rate Decision is announced by the Reserve Bank of Australia. If the RBA is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the AUD. Likewise, if the RBA has a dovish view on the Australian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.
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