Preview of the September RBA meeting - AUDUSD

Following the Feds Jackson Hole Symposium that features a speech from Fed Chair Powell at 9.10 am EST on Thursday the 27th of August, attention will likely turn to the RBA’s monetary policy decision next Tuesday the 1st of September.

Charts (3)

To refresh, at its last meeting in early August, the RBA “decided to maintain the current policy settings, including the targets for the cash rate and the yield on 3-year Australian Government bonds of 25 basis points.”

Since then, the market has heard from RBA Governor Lowe and colleagues on three notable occasions. Firstly, in the Quarterly Statement of Monetary Policy (SoMP) on the 7th of August. Then during a testimony to the House of Representatives Standing Committee Economics on the 14th of August. Finally, in the minutes from the RBA’s August meeting, released on the 18th of August.

The key points from the SoMP were:

  1. The unemployment rate to peak at 10% in late 2020.
  2. Underlying inflation is forecast to increase from 1% in December 2020 to 1.5% in December 2021.
  3. Wage Price Index is expected to ease to around 1.25% by end 2020, the slowest growth on record.
  4. The RBA is expecting the economy to contract by 6% in 2020, before a 5% rebound in 2021.

At the address to the House of Representatives, Governor Lowe clarified his position on two key policy positions.

  1. The value of cutting already ultra-low-interest rates by 0.1-0.2% would have minimal impact.
  2. The Governor indicated that negative rates are “extraordinarily unlikely” without entirely ruling them out.

Taking into consideration the points above, the RBA is expected to make no change to its current monetary policy settings at its meeting next Tuesday or indeed in the foreseeable future.

Possible catalysts for settings to change would be an extremely overvalued currency in which case currency intervention and or negative rates may be considered. However, as the chart below shows, the AUDUSD is currently trading slightly cheaply when compared to the price of iron ore, Australia’s largest export.

Alternatively, progress towards the Bank's employment and inflation objectives would result in the RBA raising the cash rate.  

Preview of the September RBA meeting - AUDUSD 

Source Tradingview. The figures stated areas of the 26th of August 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.