No More Rate Cuts: RBA

The era of record low interest rates in Australia could be at an end, as RBA Governor Lowe has hosed down the prospect of more coming.

Written by: Dime Levov • Friday, October 18, 2019 • 2 min read

• Last updated: Friday, October 18, 2019

The era of record low interest rates in Australia could be at an end, as RBA Governor Lowe has hosed down the prospect of more coming.

Speaking to members at the International Monetary Fund in Washington on Thursday, Lowe said the economy was going to return to “trend growth”, next year.

“I don’t think it’s the right assumption to make that we’re going to have a lot more work to do to get inflation back to target and growth back to trend,” Lowe said.

“I think it’s quite probable that we’ll see a return to trend growth over the next year, which will be good.”

“Which will help get the unemployment rate down and gradually wages will pick up.”

These are some pretty powerful statements from Lowe, who has already overseen the rates dropping from 1.5%, to where they sit currently at 0.75%.

Markets are now pricing in a 16% chance of a 25 bp rate cut in November, down from 40%, before yesterday’s jobs data.

Of course, the downtick in the jobless rate was a big reason for the move, where the rate fell to 5.2% from 5.3% and marks a nice change of direction. Just what Lowe would have been looking for.

As a result the AUD/USD has really jumped strongly. It is now up above the 0.6800 mark and attempting to push higher.

There is a little resistance at 0.6850, but in reality, I think we will see another move back up to 0.6900.

A point to note is that it is not likely to see a quick jump higher in rates. So while the downside in the Aussie might now be coming to an end, it is still unlikely to jump significantly higher.

So for me, 0.7000 is likely to be a bit of a line in the sand and probably about right in terms of what is a ‘fair value’.