AUD: RBA Governor Lowe signals willingness to ease policy further – MUFG Bank

Lee Hardman, currency analyst at MUFG Bank, notes that AUD has weakened modestly overnight resulting in the AUD/USD rate moving further below the 0.7000-level, following a speech from RBA Governor Lowe in which he stated that “if demand growth is not sufficient, the board is prepared to provide additional support by easing monetary policy further.

Key Quotes

“Whether or not further monetary easing is needed, it is reasonable to expect an extended period of low interest rates. On current projections, it will be some time before inflation is comfortably back within the target range”.”

“The comments signal clearly that low rates in Australia are here to stay and they are likely to be lowered further in the year ahead. However, he did not provide any signal that further monetary easing will be delivered sooner than current market expectations for a rate cut in November or December. He reiterated that the RBA remains strongly committed to delivering an average rate of inflation of between 2 and 3 percent.”

“The current inflation undershoot is increasing pressure on the RBA to deliver monetary easing, and at the same time Governor Lowe signalled that the thinks the government could do more to support the slowing economy and spur hiring through tax cuts and infrastructure investment.”

“The Australian dollar’s status as a relatively high yielding currency will continue to be eroded by RBA rate cuts. It leaves the Aussie vulnerable to further weakness especially while global growth is slowing as well.”