Governor Lowe kept rates unchanged as it awaits further insights from economic data before slashing rates again. EUR/AUD could head lower.
Reserve Bank of Australia (RBA) left rates unchanged as widely expected at 1.00%, where it has been since the RBA cut rates in June and July. Retail sales, released before the RBA met, fell 0.1%, with no signs of improvement in consumer spending despite the lower rates.
Three important points in Governor Lowe’s statements:
- He amended GDP growth from previous references of 2.50% in 2019 and 2.75% in 2020 to “trend over the next couple of years.”
- He said that economic growth has slowed in Australia with wages remaining subdued and a decline in housing prices and turnover.
- He said that demand in housing markets in Sydney and Melbourne are seeing signs of a turnaround.
Australia’s second-quarter GDP, to be released tomorrow, is expected to show the economy slowing to its weakest growth in almost two decades. This is due to the ongoing impact of trade tensions and cases of floods and drought in Australia.
We believe that the easing measures will not show its full effect until September quarter figures are out in three months’ time. We would need some time to assess the efficacy of monetary easing.
Furthermore, Australia recorded its first balance of payments surplus in 44 years due to its massive iron ore and coal exports, inflated by the rising US dollar.
All in all, there isn’t any major change in the RBA’s views from its last meeting which is to ease further “if needed.” Labour data (especially on wage growth) and inflation will be important to determine how soon the next rate cut is. Economists believe the RBA will cut by November to drive down unemployment and boost wages.
EUR/AUD could continue to head lower after breaking a critical support. The ECB is also expected to cut rates during their meeting next week which could be a boost for EUR/AUD to move lower. We expect this pair to hit the 1.6200 price level.
Fullerton Markets Research Team
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