Australian Dollar Steady, RBA Leaves Rates On Hold As Expected
Australian Dollar, Reserve Bank of Australia Monetary Policy Decision, Talking Points:
- Australian base rates remain on hold just above zero
- The central bank sees a 10% GDP hit in the year’s first half
- It expects a quick recovery, but admits high uncertainty
The Australian Dollar barely moved Tuesday after the Reserve Bank of Australia left interest rates on hold at record lows.
The Official Cash Rate thus remains at the 0.25% level, where its been since March 19 after the second of two, quarter-percentage-point reductions that month, part of Australia’s economic response to the coronavirus.
The central bank acknowledged that the economy in its charge faces a terrible economic hit from the contagion. Its baseline expectation is that Gross Domestic Product will fall by 10% in the first half of the year, and by 6% for 2020 as a whole. However, it expects a 2021 bounce-back, and pledged to keep borrowing costs low until employment prospects recover and inflation is durably back to target.
It also said that capital markets were functioning better than they had in the early stages of the contagion, thanks to measures taken by regulators across the world.
As the decision had been broadly expected, there was little foreign exchange reaction. AUD/USD blipped slightly lower, perhaps in response to the RBA’s preparedness to increase its bond purchases should it think that necessary.
The Australian Dollar has gained since its virus-inspired March lows, buoyed up like other growth-correlated assets by strong remedial action by various governments and, more lately, by hopes that the global economy will start to emerge from lockdown.
That said huge uncertainties clearly remain, with the prospect of a global recession still hanging over the markets, and weak economic numbers all-but certain for months to come. US labor marker data due this week may well underline this sorry fact, with millions of job losses expected.
The Australian Dollar lacks interest rate support too, but that may be less of a problem for it than it used to be given that record-low borrowing costs are in place across much of the developed world.
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--- Written by David Cottle, DailyFX Research
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