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RBA commentary over the past month makes it clear the Board is content with current monetary policy settings. As such, economists at TD Securities expect no changes at this week’s meeting. The August statement made no mention of the currency, but the Bank has been vocal that it sees the aussie as being fair even though it would welcome a lower AUD. AUD/USD trades around 0.7350, extending the corrective decline in European trading.

Key quotes

“Dovish (<10% prob): The Bank would need to express concern at the pick up in infections globally, that the border closures for foreigners are likely to extend to end 2021, NSW goes into lockdown and/or that unemployment is likely to remain at 10% in 2021. Developments have not deteriorated that significantly in the last month to justify those concerns. For now the Bank believes there is little benefit of cutting the cash rate to 0.1%. If the Bank was to act, we expect the RBA would be inclined to extend the TFF maturity to 5yrs, but this is perhaps a possibility end 2020 or in early 2021 if the outlook deteriorates as per developments mentioned above. The Board is nowhere near considering this as an option tomorrow. AUD/USD at 0.7250.”

“Neutral (>85% prob): The Bank is likely to indicate that the downturn has not been as bad as initially feared but for the recovery to be ‘uneven and bumpy’. We anticipate the Bank is likely to indicate it’s content with current policy settings. Indeed the expected drawdown of the initial allowance should be enough to keep the RBA observing developments from the the sidelines. Further with the Victorian Premier indicating a roadmap to exit lockdown to be detailed on 6 Sep, this should be news the RBA would welcome, reinforcing no need for the RBA to shift its current stance. AUD/USD flat to 0.74.”

“Hawkish (<5% prob): The RBA has indicated the risks are tilted to the downside even though the downturn has not been as severe. RBA commentary suggesting the risk is for lower, not higher inflation and that the unemployment rate is likely to be higher if those on zero hours are counted means a hawkish stance is hard to justify at the moment. Indeed, the Governor stated just last month that the employment and inflation conditions are not likely to be met for at least three years meaning it’s a stretch for the RBA to deliver a hawkish stance. AUD/USD at 0.75.”

 

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