RBA Hold Rates Yet Could Ease Their Way Into 2020

In the final meeting of the year, RBA decided to keep rates on hold 0.75%, whilst keeping the door open for further cuts.

What made this meeting more interesting was that it followed on from Lowe’s highly anticipated speech last week, title “Unconventional Monetary Policy: Some Lessons From Overseas”. After all but ruling out negative rates and saying they were extraordinarily unlikely to happen, he clearly stated that QE would not occur until rates were at 0.25%. This leaves two -25b bps but on the table.

So today was all about if RBA were going to cut sooner or later in 2021, as expectations for a cut today were only around 9%. Upon first glance, the statement is its usual reserved format with talk of the ‘gentle turning point’ with the economy and expectations for growth, inflation and unemployment data to improve. Yet these weak targets, once compared with Dr Lowe’s comments that the RBA will implement QE if they’re not on track to meet their objectives over the medium-term, then we struggle to see how they’ll sit on their hands through most of next year. If anything, today’s statement reinforces the view that RBA could ease as early as Q1 2020.

Still, markets are bid the Aussie over the near-term which provides bullish opportunities, so long as tomorrow’s GDP data and Thursday’s retail sales allow. Yet there’s potential for GDP to hold up looking at today’s trade figures and provide another tailwind for AUD.

AUD/NZD is enjoying a very minor rally at the lows of an extended, bearish leg. Due to the lack of retracements and the fact that RSI reached its most oversold level this year, then a corrective bounce could be due. Yet we expect it to be short-lived, so remains a pair to consider fading into as this still could form new lows.

AUD/JPY finally burst above the resistance levels highlighted yesterday and appears set to challenge 75. Given that the bullish trendline held and we’ve now seen a solid breakout from compression, the cross could be headed for the highs around 75.50 is sentiment allows.

The bias remains bullish above the 74.25 low, whereas a break beneath here takes it back within the compression pattern and raises the risk of a reversal (and break of the bullish trendline).

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.