RBA Warns Rate Cut Now Just As Likely As A Rate Hike

The Australian Dollar was sharply lower yesterday as, following on from the muted RBA meeting on Tuesday, RBA governor Philip Lowe struck a decidedly dovish tone in comments made during a speech in Sydney.

The RBA chief moved away from the bank’s recent, consistent message regarding a rate hike as being the next likely move for the RBA. Instead, he warned that a rate cut was now just as likely as a rate hike given the balance of risks to the domestic economy.

Indeed, although just as recently as December, the RBA chief was reaffirming his view that rates would move higher next, Lowe now says that forecasts made at the December meeting were overly optimistic in the face of growing “downside risks.”

House Price Declines To Continue

Indeed, referring to one specific set of those downside risks, declining house prices, Lowe forecasts that price declines are going to continue before they stabilize.

It is precisely the stress on highly indebted households from these house price declines that could see the bank needing to lower rates from their already record lows of 1.5% in a bid to shore up the economy.

While the RBA chief still expected a “reasonable” economic growth of 3% this year, Lowe did highlight the growing uncertainty around the outlook for household consumption in the face of continued house price declines.

Technical Perspective

After piercing both the local structural resistance at .7237 and the bearish trend line from 2018 highs, AUDUSD has now turned sharply lower once again and is heading back down towards support at the .7021 level. If we break below this level, we are likely to gather fresh bearish momentum quickly, bringing the 2019 lows into focus.