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All eyes on RBA

Published July 2, 2019

By Perry Mitchell

Following a day filled with losses mainly due to the markets buying preference for the USD and downbeat numbers out of China, AUD/USD is back below .7000 this morning ahead of the monetary policy meeting today. The Reserve Bank of Australia will make its interest decision on a week where a great number of economic data releases are streaming in from both locally in Australia and the U.S.

Since having cut from 1.50% to 1.25% on June 4, in his dovish speech at the start of the month Governor Lowe referred to an “accumulation of evidence” that inflation pressures will remain subdued. He stated that it is “not unrealistic to expect” another cut. With this, we have seen markets pricing in a rate cut to 1% for today by around a 70-75% chance. The last time the RBA delivered consecutive interest rate cuts was back in 2012.

The RBA is striving to revive our economy that has just passed 28 years without a recession, yet is on track for its weakest fiscal year since 1991. In the first quarter of this year, we saw GDP rise by 0.4% and the year-on-year growth rate was just 1.7%, which was the slowest pace recorded since 2009. Given the backdrop of softening global growth and specifically a weakening Chinese economy, there are plenty of headwinds facing Australia.

On the US-China trade talks front, reports of an agreement had been flagged ahead of Trump and Xi Jinping’s meeting on the sidelines of the G20 meeting in Japan. Trump said he would hold back on new tariffs and that China will purchase more farm products. Trump also offered to ease restrictions on the tech company Huawei. However, market participants have remained cautious as the negotiations have not signified that a deal is imminent.