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Breaking News: RBA Warns Speed of Economic Recovery to be “Highly Uncertain”

Posted by Fullerton Markets on July 7, 2020 at 5:14 PM


With RBA keeping rates unchanged for years to come while keeping stimulus on the table if required, Aussie dollar could remain weak for now. Short AUD/USD?

  • The Reserve Bank of Australia (RBA) kept rates unchanged as widely expected, with the bank previously signalling that interest rates will remain extremely low for years to come.
  • RBA Governor Lowe said the nature and speed of the economic recovery was “highly uncertain.”

  • He also said, “The uncertainty about the health situation and future strength of the economy is making many households and businesses cautious, and this is affecting consumption and investment plans.”

  • Even though Australian consumer spending rose, most of the spending are on household goods and groceries, instead of services such as travel and entertainment.

  • One main concern that could cripple Australia’s current recovery momentum is the fiscal cliff in September. Most of the stimulus will be expiring in September and the economy could take a hit.

  • The biggest risk will be the AU$75 billion home loan default cliff when JobKeeper payments and banks’ 6 months mortgage holiday end.

  • With a weak employment rate in Australia, many mortgage holders fear that they might have to sell their home. This could cause an economic domino effect.

  • Lastly, we are also seeing a resurgence of COVID-19 cases in Victoria as the news reported its largest increase with 190 cases in one day.

  • All in all, we believe that the RBA will remain open for further stimulus if required.

  • AUD/USD could fall lower towards 0.68500 price level.

 

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