Australian Dollar Might Extend Fall Despite Eased Coronavirus Restrictions

Australian-Dollar-May-Extend-Fall-Despite-Easing-Covid-19-

AUSTRALIAN DOLLAR TECHNICAL OUTLOOK – NEUTRAL

  • The scheduled ease of COVID-19 measures in Victoria, Australia’s 2nd largest city, might temporarily stall the Australian dollar rebound from the yearly highs.
  • Growing hopes that the Reserve Bank of Australia will cut rates next month might continue weighing heavily on the AUD.
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The Aussie dollar seems to be at risk of extending the retreat from the yearly highs that had been set earlier this month ahead of the RBA interest rate decision on 6th October, despite the newly planned easing of COVID 19 restrictions in Victoria.

With a 14-day rolling average of coronavirus infections dropping to 25.1 and the COVID-19 growth rate dropping under 0.5, it’s highly likely that Victoria would be moving to the 2nd phase of Dan Andrews, the Victorian Premier, reopening plan scheduled for 27th September.

Nevertheless, the premier warned that Sunday won’t be the day for massive steps and it won’t be the day that the state typically opens their doors. He further added that instead there would be an array of safe and steady steps to make sure that there is a steady, yet well-planed drop in these numbers. While the next stage of the recovery roadmap is not likely to see the state to return to normalcy, the continued drop in COVID-19 infections together with steady ease of the lockdown measures might underpin the AUD against its major peers in the short term as AUD/USD At Key Support, Trump Popularity On The Rise Despite Virus Spike.

RBA TO CUT RATES IN OCTOBER

That said, the latest remarks from Guy Debelle, the deputy governor for the RBA seems to show that the bank would ease the monetary policy next month considering the forecast for employment and inflation isn’t consistent with the objectives of the bank in the period ahead.

Debelle listed various policy options that the central bank would continue to assess. This includes changing the bank’s current bond-buying scheme to supplement the –year yield target and possibly low the new rate structure in the economy.

This shows that the RBA would be taking into account cutting the OCR (Official Cash Rate) to 0.1% from 0.25% and possibly introduces the program of the government bond purchases beyond what was needed to achieve the 3-year yield target. Essentially, it’s highly likely that the market has already taken heed of the comments made by the deputy governor, with equities market priced at 72% chance that the bank cuts the cash rate to 0% next month.

However, there is a different viewpoint that the market might be overestimating itself considering the Phillip Lowe; the governor has previously questioned the benefits of easing these rates by 15 basis points.

Also, the retail sales data and manufacturing PMI data for August and September will dictate the short term AUD outlook.

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