RBA Cites Uncertainty As Melbourne Back On Lockdown

Rates Remain At Record Lows

At its July meeting this week, the Reserve Bank of Australia refrained from adjusting its monetary policy. This was in line with broad market expectations. Rates now remain at record lows of 0.25%.

The RBA statement issued with the decision was broadly optimistic. However, RBA governor Lowe was clear regarding the downside risks to both the domestic and global economies from the ongoing COVID-19 pandemic.

In the statement, the RBA noted:

“Globally, conditions in financial markets have improved. Volatility has declined and there have been large raisings of both debt and equity. The prices of many assets have risen substantially despite the high level of uncertainty about the economic outlook. Bond yields remain at historically low levels”.

“Biggest Contraction Since the 1930s”

Despite noting calmer conditions, Lowe was keen to stress the severity of the current situation, saying:

“The Australian economy is going through a very difficult period and is experiencing the biggest contraction since the 1930s. Since March, an unprecedented 800,000 people have lost their jobs, with many others retaining their job only because of government and other support programs.”

Again, however, even this message was fairly optimistic. He went to say:

“Conditions have, however, stabilised recently and the downturn has been less severe than earlier expected. While total hours worked in Australia continued to decline in May, the decline was considerably smaller than in April and less than previously thought likely. There has also been a pick-up in retail spending in response to the decline in infections and the easing of restrictions in most of the country.”

RBA Prepared to Ease Further

While the statement noted the recent pickup in activity, however, the outlook “remains highly uncertain.” Lowe was nonetheless keen to reassure markets, saying:

“The Bank is prepared to scale-up its bond purchases again and will do whatever is necessary to ensure bond markets remain functional and to achieve the yield target for 3-year AGS. The yield target will remain in place until progress is being made towards the goals for full employment and inflation.”

Second Wave Fears Rising in Australia

Uncertainty concerning the recovery in Australia has taken on greater focus in recent days. Traders are now reacting to news of fresh lockdowns there.

Cities such as Victoria and Melbourne have been placed back into lockdown amidst a fresh outbreak of cases. There are also fears that the spread could reach Sydney.

With this in mind, travel in and out of Sydney has been reduced as the government battles to prevent a second wave of the virus from taking hold.

AUDUSD Holds Above Broken Bearish Trend Line

The recent rally in AUDUSD has seen price breaking above the .6684 level which now becomes support. The rally has so far been capped by resistance at the .7025 level.

The retest of the trend line has so far held as support, keeping focus on a further grind higher in the near term. The .7333 level is the next resistance to watch.

Only a move back below the .6684 level, which would bring price back under the bearish trend line, will alter this view.