AUD/USD continues to nurse losses as RBA sees slower recovery

• AUD/USD keeps losses as RBA’s SoMP talks about slower recovery. 
• The central bank expects GDP to drop by 6% in 2020. 
• US fiscal deadlock and Sino-US tensions may weigh over the AUD.

AUD/USD continues to trade in the red near 0.7224 with the Reserve Bank of Australia’s quarterly statement of monetary policy (SoMP) stating that the pace of economic recovery could be slower than what was expected in May. 

While employment and hours worked are expected to recover across the country,  the effects of the heightened activity restrictions in Victoria are likely to offset the pick-up in GDP growth in other parts of the economy in the September quarter, the SoMP said while citing further outbreaks of the virus and associated restrictions on the activity as key risks to the outlook.

The central bank said that underlying inflation is likely to remain subdued low wages growth and substantial spare capacity in the economy and projected an economic contraction of 6% over 2020. In addition, the bank expects the unemployment rate is expected to rise to almost 10 percent over the next six months 

All-in-all, the tone of the policy statement is largely in line with expectations. As such, the AUD has barely moved since the release of the SoMP. 

The currency pair, however, could extend losses during the day if the global equity markets decline on US fiscal impasse. Both Republicans and Democrats affirmed overnight that little progress has been made on additional coronavirus package, even though we are just one-day out from when lawmakers had planned to finalize a deal.

Further, Sino-US tensions are escalating. As per the latest reports, President Trump has signed executive order to address the threat of WeChat. 

Technical levels