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The Reserve Bank of Australia (RBA) is all set to announce the first monetary policy decision of 2020 at 3:30 am GMT on Tuesday. Although the central bank is widely anticipated not to announce any changes into its present monetary policies, traders will pay close attention to the RBA rate statement considering the mixed play of the latest economics. Also likely to influence the Aussie central bank’s moves will be China’s coronavirus and the reactions to the same will gain an additional highlight.

Market expectations

Analysts at MNI cites the RBA interest rate’s nearness to effective lower bound while anticipating a no rate change:

The RBA has noted that it ‘is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.’ The minutes from the December meeting went one step further, specifying that ‘members agreed that it would be important to reassess the economic outlook in February 2020, when the Bank would prepare updated forecasts.’ But, the Bank will not want to act with ‘undue’ haste with the cash rate a mere 50bp off of the effective lower bound. The latest round of tier-one domestic data has seemingly afforded the RBA enough space to wait and see, which is particularly fortuitous given the local bushfire developments and the Chinese coronavirus outbreak.

Westpac offers details of GDP and CPI to base their forecast matching the wide market consensus:

Much has happened since the RBA Board’s last meeting 2 months ago, including Australia’s poor Q3 GDP data, 2 firm jobs report, devastating bushfires and the Wuhan coronavirus. Westpac expects a steady cash rate at 0.75% after today’s meeting (2:30 pm Sydney time), which has changed our view after the drop in unemployment in Dec. This is also economists’ consensus view, though market pricing for a cut has ticked back up from about 10% after Q4 CPI data last week to 20% chance in response to market turmoil on the novel coronavirus.

How could the RBA decision affect AUD/USD?

While dovish halt will keep traders on the lookout for fresh yearly lows towards 2019 bottom surrounding 0.6635, an absence of negative statements could the Aussie pair to extend its recovery towards November 2019 low near 0.6750. However, the odds are against any such actions that ignore China’s coronavirus and its negative impact, which in turn could keep weighing to the quote.

To offer clarity, analysts at the MNI suggests hints to look for into the statement:

Base Case: Unchanged MonPol settings, reiterate dovish forward guidance. Happy to hold on to what is left of its optionality with the cash rate only 50bp from its effective lower bound. A markdown of GDP growth exp. in the SoMP, with suggestions of such a move in Tuesday’s statement.

Dovish Risks: Outside chances of a cut to speed up the gentle turning point in the economy, with fears surrounding the bushfires/spill over effects of Coronavirus’ impact on the Chinese economy the driving matters of any such move.

Hawkish Risks: A sense of added belief in its view of the domestic economy, owing to the recent tier one domestic data developments.

Key Notes

AUD/USD Forecast: Could the RBA save the day?

AUD/USD hovers around 0.6690 ahead of RBA interest rate decision

Chart Of The Week: AUD/USD sold to critical support ahead of RBA

About the RBA interest rate decision

RBA Interest Rate Decision is announced by the Reserve Bank of Australia. If the RBA is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the AUD. Likewise, if the RBA has a dovish view on the Australian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.