With RBA keeping rates unchanged for years to come while keeping stimulus on the table if required, the Aussie dollar could remain weak for now. Short AUD/USD?
The Reserve Bank of Australia (RBA) kept rates unchanged as widely expected, with the bank previously signaling that interest rates will remain extremely low for years to come.
RBA Governor Lowe said the nature and speed of the economic recovery was “highly uncertain.”
He also said, “The uncertainty about the health situation and future strength of the economy is making many households and businesses cautious, and this is affecting consumption and investment plans.”
Even though Australian consumer spending rose, most of the spending are on household goods and groceries, instead of services such as travel and entertainment.
One main concern that could cripple Australia’s current recovery momentum is the fiscal cliff in September. Most of the stimulus will be expiring in September and the economy could take a hit.
The biggest risk will be the AU$75 billion home loan default cliff when JobKeeper payments and banks’ 6 months mortgage holiday end.
With a weak employment rate in Australia, many mortgage holders fear that they might have to sell their home. This could cause an economic domino effect.
Lastly, we are also seeing a resurgence of COVID-19 cases in Victoria as the news reported its largest increase with 190 cases in one day.
All in all, we believe that the RBA will remain open for further stimulus if required.
AUD/USD could fall lower towards 0.68500 price level.
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