RBA and Australian Federal Budget Preview ASX200

RBA interest rate decision:

In a speech on the 22^nd of September, RBA Deputy Governor Debelle indicated the RBA remained concerned about the economic recovery and emphasized the RBA has more scope to ease policy.

The market moved quickly to price in a 15bp cut to the overnight cash rate to 0.1% and the three-year bond rate to 0.1% at the October 6 meeting. However, while the case for more stimulus to be delivered sooner than later remains, there has been a slight rethink around the timing of the cut.

To allow the Federal Government both the time and space to promote its Federal Budget, the market now expects the RBA to delay making changes to monetary policy until its meeting on November 3.

Federal Budget:

Due to the coronavirus, the Australian Federal Budget for 2020-2021 was delayed from May until October and next Tuesday night, the Treasurer is expected to announce an underlying cash deficit of around $250bn for 2020-2021.

While the timing has changed, the process of selling the budget remains similar to past years with some of the content flagged in advance, including the announcement this week of $1.5bn for manufacturing over four years.

Other changes have been hinted at, including bringing forward personal tax cuts already legislated tax incentives to business as well as a strong focus on job creation. To facilitate job creation, substantial funds are expected to be directed towards infrastructure projects.

Some positive surprises remain possible, including the announcement of additional cash stimulus to households and industries still impacted by COVID-19 related policies such as tourism.

After a 4% fall in September, the ASX200 is currently trading towards range lows and a band of support between 5800 and 5700.

The gradual re-opening of the Victorian economy, the boost from the Federal Budget, and a November cut from the RBA, is expected to see the ASX200 hold support and retest the top of the range, 6200 area.

Source Tradingview. The figures stated areas of the 2nd of October 2020. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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