Reserve Bank of Australia meeting preview: RBA tipped to cut rates to 0.1%

When is the RBA meeting next?

The RBA will meet on Tuesday, November the 3rd at 2.30PM.

GDP (YoY) Unemployment Rate Wages Growth (YoY) CPI (YoY) Retail Sales (YoY)
6.3% 6.9% 1.8% 0.7% 7.1%

What is the market expecting from this RBA meeting?

Interest rate markets and economists are overwhelmingly pricing-in interest rate cuts from the RBA. Although this market has become somewhat distorted since the RBA cut rates close to the effective lower bound and began its yield curve control program, ASX 30-day cash rate futures are implying an 85 per cent chance of a rate cut from the RBA at this meeting. The cut itself will almost certainly be a “partial cut” of 15-basis points, which would take the cash rate, along with the rate on the RBA’s Term Funding Facility and 3-year yield curve control program to 0.1%.

What are the key themes to watch at this RBA meeting?

1. How has the RBA’s economic outlook changed?

This RBA meeting will precede the central bank’s latest Quarterly Statement on Monetary Policy (SOMP), which will be published on Friday the 6th of November. Despite the RBA’s push to ease monetary policy further, the central bank is widely expected to moderately upgrade its economic projections, to reflect a stronger than expected labour market, as well as factors like an improving coronavirus situation in Australia. As of its latest SOMP, the RBA had forecast that to year-end December 2020, GDP growth in Australia would contract by -6 per cent, and the jobless rate would be approximately 9 per cent.

2. To QE or not QE

Since the RBA’s last meeting, expectations have grown that the central bank will soon embark on its own “conventional” quantitative easing program. The change in expectations came after the RBA flagged in the minutes of its last meeting the “larger balance sheet expansions by other central banks relative to the Reserve Bank” and its impact on the exchange rate. The timing of a possible QE program will be watched out for by the market at this RBA meeting, as the central bank looks for new ways to support the Australian economy, and keep pace with the actions of other global central banks.

How could the RBA meeting impact the AUD/USD?

Given that rate cuts from the RBA are all but considered certain by the market, meaningful volatility around this meeting will likely be generated by what the central bank has to say about the economic outlook and the need for a QE program. Risk is likely skewed to the downside for the AUD/USD, which finds itself under pressure amidst weaker sentiment in global markets heading into the US election, and vulnerable to a surprise announcement of an RBA QE program. The pair is perched at a resistance zone around 0.7005-0.7030 currently. If that resistance is breached, the next key level on the daily charts rests around 0.6830.

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