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Lowe in focus today

There’s a 40% Chance of a Rate Cut: RBA

Posted Tuesday, October 6, 2020 by
Rowan Crosby • 2 min read

Financial markets are pricing in a 40% chance of a rate cut at today’s RBA meeting, however, most experts feel that we won’t be seeing one.

We’ve been hearing for a few weeks now that the RBA is considering cutting the official cash rate to 0.1% from where it sits at 0.25%. That sentiment that was strong a few weeks ago now appears to have eased, with some belief that it could still happen at the next meeting in November.

The comments from an RBA board member, caused the AUD/USD to fall to 0.7000 and it has since rebounded strongly.

In fact, the price action has taken the Aussie back to where it started before the comments and we can also see that it is making a series of higher lows – which is bullish.

The interesting thing for me at the time was that the RBA flagged one of the big issues being the high price of the AUD.

Back in the height of COVID lockdowns the AUD/USD fell to 0.5500 – so to be sitting just shy of 0.7200 is a big recovery. In reality, price is now back higher than when COVID first hit, so clearly that is one issue. Given that Australia is an export economy, we like to see a lower AUD as that helps the value of the money received for exports and boosts GDP.

But the falling USD in particular and the fact that Australia has come out unscathed from COVID means the exchange rate is holding up well.

I did feel that the RBA wanted to talk down the Aussie and that is what we saw a few weeks ago and that was helped when the big banks came out strongly in support of a cut – before changing their minds.

So today, while a cut might be unlikely, what markets what to know is whether the RBA are prepared to cut their lower bound (currently 0.25%) any more in the next few months.

AUD/USD – 240min.
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