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RBA preview: 3 questions ahead of this month’s meeting


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BG_rba_reserve_bank_australia_321651651.
Source: Bloomberg
 
 

The economic data that matters

What is the market expecting from this RBA meeting?

No material change in policy is expected from the Reserve Bank of Australia (RBA) at this meeting, after the central bank practically settled on policy settings for the remainder of 2021 at the September meeting. The cash rate will naturally remain unchanged for the foreseeable future. While the RBA also stuck to its decision to reduces its weekly bond buying to $4 billion but deferred the date of which that will be next reviewed to February.

It means that for the final three meetings of the year, barring a huge and set-back to the Australian economy, there’s very little chance of an adjustment to policy. On top of that, speculation about the trajectory for the cash rate is likely to quieted, after a speech delivered by RBA Governor Lowe last month hammered home that given the economic outlook, he sees no impetus to raise it before 2024.

 

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Source: ASX, IG charts

What’s the outlook for the Australian economy?

The markets will be keeping an eye out for any fresh view on the Australian economy from the RBA, as current economic activity remains stifled by lockdowns in New South Wales, Victoria, and the ACT, but the country’s vaccination drive nears the thresholds that will see the restrictions ease.

The latest tier-1 data releases for Australia revealed GDP growth at 9.6%, CPI growth at 3.8%, and the unemployment rate at 4.5%, with the latter masking the general weakness in jobs growth because of falling labour participation and utilisation because of recent lockdowns. Surveyed economists from Bloomberg recently downgraded their forecasts for Australian GDP growth this quarter from -2.0% to 3.1% but maintained that the economy ought to rebound the following quarter to stay out of technical recession. They also tipped inflation to ease back to with the RBA’s target range for the year ending 2021 to 2.5%.

GDP.png
Source: Bloomberg, IG charts

How could the RBA meeting impact the AUD/USD?

The trend for the Australian Dollar remains skewed to the downside, as the combination of a weaker outlook for global growth, financial and economic instability in China, a falling iron ore price, and a tightening cycle from the US Federal Reserve weighs on the currency.

However, the AUD/USD has experienced something of a rebound lately, courtesy of what appears to be the unwinding of what was historically stretched short positioning amongst traders. Given there’s relatively little uncertainty heading into this RBA meeting, the price reaction to it for the AUD/USD may be muted. From a technical standpoint, a push through a resistance zone between ~0.7290-0.7310 may see free fresh buying of the AUD/USD and a further unwinding of short positioning, with the next key level of support around 0.7415 beyond that. A break below the previous low of 0.7160 could open further downside to the pair’s 11-month low just above 0.7100.

AUD.png
Source: TradingView

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Kyle Rodda | Market Analyst, Australia
04 October 2021

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