Australian Dollar, Reserve Bank of Australia, Interest Rate - Talking Points
- The Australian dollar[1] has pushed back to pre-crisis levels as the RBA maintains the effective lower bound for interest rates at 0.25%
- Forward guidance at the June meeting will be intently scrutinized to determine if the Australian central bank maintains an optimistic outlook of the local economic recovery
Fundamental Forecast for AUDUSD: Bullish
RBA Governor Philip Lowe’stestimony to the Senate Select Committee on COVID-19 praised the performance of the central bank’s mid-March emergency package and its assistance in ‘building the necessary bridge to the recovery’.
The success of ‘flattening-the-curve’ of COVID-19 infections in Australia has led to ‘national health outcomes better than earlier feared’ and may result in an ‘economic downturn not as severe as earlier thought’. Outlining that the path for recovery will be dependent on ‘how quickly confidence can be restored’ the Governor may be pleased by the record rebound of the Westpac Consumer Sentiment Index in May (88.1), after falling to the lowest levels recorded on the 47-year old gauge in April (75.6).
Fiscal support through the JobKeeper & JobSeeker initiatives has helped cushion the blow on the labor force resulting in the unemployment rate for April beating market expectations (8.3%), despite rising to the highest level since late-2015 (6.2%). With the participation rate falling to a 15-year low in April, the smooth re-opening of the economy will be pivotal in defining the next steps for the RBA as the central bank ‘maintains its expansionary settings until progress is being made towards full employment’.
The upbeat tone in the RBA meeting minutes for May pushed the AUD/USD[2] back to pre-crisis levels and this push could continue if local economic data supports the ‘upside scenario’ in which
