Image source: eyeofpaul © 123RF.com
The Governing Board of the Reserve Bank of Australia held one of its regular monetary policy meetings yesterday, on which it was decided the interest rate would not be changed from its current value of 0.25 per cent.
The consensus forecasts vastly anticipated this because the situation has not changed drastically from the Board's previous meeting in April, and the overall economic outlook remains muted.
As we argued in our 'Weekly Expectations' update from Monday, the central point of Tuesday's meeting concerned the Board's views on the current monetary policy, and whether the recent changes to the global economic outlook necessitate adjustments to the Bank's stance.
In the post-decision statement, the Board asserted that no such actions are needed presently and that it will continue monitoring the situation as it develops in the following weeks and months.
Additionally, the Board published its revised projections regarding the likely scope of the evolving recession of the Australian economy by the end of the year, as well as its expectations for a recovery in 2021.
"The Australian economy is going through a very difficult period and there is considerable uncertainty about the outlook. Reflecting this uncertainty, the Board considered a range of scenarios at its meeting. In the baseline scenario, output falls by around 10 per cent over the first half of 2020 and by around 6 per cent over the year as a whole. This is followed by a bounce-back of 6 per cent next year. […] In the baseline scenario considered by the Board, the unemployment rate peaks at around 10 per cent over coming months and is still above 7 per cent at the end of next year."
The RBA's primary economic projections encompass a potential scenario in which the overall unemployment rate nearly doubles by the end of the year, indicating that the toll on the labour market from the coronavirus fallout is still far off from peaking.
Australia Unemployment Rate. Image source: TradingEconomics.com
Such expectations for future economic ripples caused by these external headwinds have pressured the Australian dollar, which has recorded a marginal stabilisation over the past several weeks after having fallen to historical lows before the COVID-19 crash.
The Aussie's bullish correction against the US dollar is now going to be strained by the RBA's dimmer outlook concerning Australia's future economic prospects, which could exhaust the bullish sentiment in the market.
The AUDUSD has already concluded establishing a major 1-5 impulse wave pattern, which could now be followed by another bearish downswing, provided that the market discounts RBA's statement as a solid confirmation for future destabilisations.
AUDUSD 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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