RBA Keeps Rates At Record Lows

<h2>“Considerable Uncertainty”</h2>
<p>At It’s May meeting, held overnight, the Reserve Bank of Australia opted to keep interest rates on hold. Following a 0.50% rate cut at the outset of the pandemic in March, taking rates to record lows of 0.25%, the RBA judged it was appropriate to keep rates at current levels for now, despite the “considerable uncertainty” within the outlook for the domestic economy. While Lowe has previously signalled that the current 0.25% region is the lowest the bank is prepared to go on rates, market pricing for a rate cut was at 60% ahead of the meeting, highlighting a disconnect between the bank’s guidance and the market.</p>
<p>Explaining the bank’s decision. RBA governor Lowe said: “The Australian economy is going through a very difficult period and there is considerable uncertainty about the outlook. Reflecting this uncertainty, the Board considered a range of scenarios at its meeting. In the baseline scenario, output falls by around 10 per cent over the first half of 2020 and by around 6 per cent over the year as a whole. This is followed by a bounce-back of 6 per cent next year.”</p>
<h2>Pace of Recovery is Key</h2>
<p>In terms of the outlook, Lowe tried to strike an optimistic tone saying that there was scope for a firm recovery in the economy if a “faster than normal” return to pre-crisis conditions were seen. However, Lowe warned investors that investors that there was plenty of two-way risk in the outlook saying that if restrictions were delayed in being lifted or needed to be re-instated then this could worsen the current economic dirge.</p>
<h2>Rates to Remain on Hold</h2>
<p>With that in mind, Lowe sought to reassure investors that rates will remain at accommodating levels for the time-being, saying: “The board is committed to do what it can to support jobs, incomes and businesses during this difficult period and to make sure that Australia is well placed for the expected recovery.”</p>
<p>While Australia has been among the least affected countries and has been highly effective in managing the virus; the impact of the virus on the global economy and on China, Australia’s key trading partner, has exerted downside pressure on the economy. Given that the economy was already under pressure following the bush-fires which raged at the start of the year in parts of the country, this has created very difficult conditions for the RBA.</p>
<h2>Technical Views</h2>
<p><strong>AUDJPY (Bearish below 68.07)</strong></p>
<p>From a technical viewpoint. The recovery in AUDJPY has seen price trading back up to retest the 70 level 2019 low, with the yearly S1 sitting just above. This level has so far held as resistance with price forming a weekly bearish pin -bar on the first test. While price remains below the level, a reversal lower remains likely on a break below the monthly pivot at 68.07.</p>
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