RBA’s Lowe Cites Victoria Lockdown Risks

<h2>Victoria Lockdown Creating Issues</h2>
<p>During comments made overnight, RBA governor Lowe poured cold water on the idea of a swift Australian economic recovery. Despite Australia having strong initial success in managing the outbreak of the virus, thanks to swift and strict lockdowns, the country has seen a fresh resurgence over recent weeks which has led to fresh lockdowns being implemented in parts of the country.</p>
<p>Lowe warned that the lockdown in Victoria, particularly, was “broadly offsetting” the recovery seen in other places. Lowe said: “People’s attitudes to spending are changing because of the pandemic. It is probable that households and businesses will remain more cautious and that this will affect consumption and investment. How long this change might last is hard to tell.”</p>
<h2>Weak Demand</h2>
<p>During these comments, which were made via video link as part of the RBA governor’s semi-annual testimony to, Lowe also cited the “growing impact” of a protracted period of weak demand. Particularly, Lowe pointed to the construction sector in which he said many firms were now having to ‘scale back” as their pre-COVID pipeline begins dying up.</p>
<p>The state of Victoria contributes around 25% of gross GDP to the country and the return of lockdown there has been a tricky issue for the RBA to manage. With over 5 million residents on stay-at-home orders for six weeks, the RBA is highly concerned over the economic impact this will have just as the country was starting on the road to recovery. In current projections, the bank expects the lockdown to shave around 2% off total GDP, reiterating the bank’s view that the economy as a whole will likely contract around 6% this year, followed by a 5% rebound next year.</p>
<h2>Lowe Pushes Back Against Any AUD Weakening Efforts</h2>
<p>Commenting on movements in the exchange rate, Lowe noted that, given the better economic performance in Australia relative to many of its global counterparts, the Australian Dollar was around fair value. Lowe was also seen opposing suggestions that the RBA should help drive AUD lower saying that he didn’t believe the bank would fair to well in such an endeavour. The Aussie is now trading roughly 25% higher following its recovery off the March lows.</p>
<p>Commenting on the employment landscape, Lowe said that the unemployment rate increased to 7.5% in July and is expected to peak at around 10% on the year. On this issue Lowe said: “If we take into account people who are on zero hours, the true unemployment rate is higher than the published measure. We are expecting the published unemployment rate to decline gradually from 10%, but to still be around 7% in a few years’ time.”</p>
<h2>Technical Views</h2>
<p><strong>AUDUSD (Bullish above .6815)</strong></p>
<p>From a technical viewpoint. The rally in AUDUSD has lost a little momentum recently with price struggling at the .7201 resistance level. However, while prices remains above the broken long term trend line, and the 50dma, the outlook remains positive with bulls looking for an eventual break towards the .7508 level.</p>
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