RBA's Dovish

RBA Prepared to Ease Further: Lowe

Posted Thursday, July 25, 2019 by
Rowan Crosby • 2 min read

Reserve Bank of Australia Governor Lowe is speaking today and has come out swinging, by suggesting the board are prepared to keep pushing forward with the easy monetary policy if required.

Speaking in Syndey the speech entitled, ‘Inflation Targeting and Economic Welfare‘, is the key news item this week for the AUD/USD and so far it has caused some weakness. The AUD is down around -0.13% at the time of writing and so far price is holding comfortably below the 0.7000 level.

It is probably not a surprise that the RBA is prepared to cut further as it has been suggested for a while now. The markets have broadly been expecting to see one more cut this year. It would be on the back of the two cuts we’ve already seen this year. As it stands the cash rate is at a record low of 1.0%. Markets are predicting a further 25bp cut at some point this year. But it is still open to debate, despite the comments from Lowe today.

I am still very much bearish on the AUD/USD. Clearly, we have an easing bias and the only thing that has seen the Aussie bounce has been the weak USD last week. That is also because the FOMC turned dovish. But to me, they are far further advanced with their economic indicators, meaning that they might cut rates this year, but will be quicker to lift them once again. Of course, they have already lifted them off the record low levels.

As we’ve heard today, Lowe expects to see a period of low rates going forward as that is what the economy is telling. I will remain with a short bias, while we trade below 0.7000. I was strong on selling pops above 0.7000 and 0.7050 and that remains the case now. I feel a ‘fair value’ for the AUD/USD is below that point, based on the respective economies and the historical results.

These are the key comments from Governors Lowe’s speech from Reuters:

  • prepared to ease policy further if demand disappoints
  • reasonable to expect an extended period of low interest rates
  • “certainly possible” demand will be strong enough to lift inflation in “reasonable timeframe
  • will be some time before inflation comfortably back within the target range
  • RBA is “strongly committed” to making sure inflation returns to range
  • the board has paid attention to shift in outlook for monetary policy globally

AUD/USD – 240min.
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