With the recent pessimism concerning the coronavirus (COVID-19) outbreak in Victoria, the Reserve Bank of Australia’s (RBA) monetary policy decision, at 04:30 GMT on Tuesday, become the key for the AUD/USD traders.
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). Though, the recent recovery in Aussie economics confronts the pandemic woes at home to probably push Governor Philip Lowe and the company to strike a dovish tone.
Analysts at Westpac provide key details of the RBA’s fight against the virus and probable outcome:
No change in the stance of policy is expected at the August RBA meeting. A full discussion of the outlook and risks will follow on Friday as the RBA releases its latest Statement on Monetary Policy. Recent RBA commentary has indicated skepticism over policy options such as negative interest rates and FX intervention. But Australia’s deteriorating economic outlook means the topic needs to be addressed.
TD Securities, on the other hand, expect no major surprises from the event:
RBA Board Meeting should have the target cash rate remaining at 0.25%. The Minutes of the July meeting and the Governor's speech released on 21st July indicated the door is shut to further policy easing, the Minutes concluding there is “no need to adjust the package of policy measures in Australia in the current environment”. Otherwise, on Tuesday the market will look to get a flavor of the Bank's latest set of forecasts for GDP, CPI and unemployment that will be published on Fri.
How could the RBA decision affect AUD/USD?
AUD/USD picks up the bids near 0.7125 by the press time of early Tuesday's Asian session. In doing so, the aussie pair snaps the previous two-day losing streak. The reason could be traced from the latest swing in the risk-tone as well as upbeat data concerning Australia’s Retail Sales.
Even so, the bulls are cautious amid the latest recovery in the US dollar and strict lockdown conditions in Victoria. While the latest COVID-19 figures for the American and Australia both cite a bit of relief, the pandemic still looms over the respective economies and hurt the growth outlook. While the recent data have been price-positive, odds of witnessing future weakness in the figures, due to the virus, can’t be ruled out. Should the policymakers convey this challenge, the AUD/USD pair may have to extend the last two-day declines. Alternatively, any optimism can add to the immediate gains but will be curtailed unless backed by the fading of the virus woes.
Technically, an ascending trend line from May 22, currently around 0.7075 precedes the 0.7065/60 support-zone, comprising June 10 high and July 24 low, to restrict the pair’s near-term downside. Alternatively, bulls have to dominate past-0.7200 to regain market confidence.
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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