With the bushfires and coronavirus continuing to weigh on Australia’s domestic growth, RBA may be forced to cut rates next month. Short AUD/JPY?

RBA Governor Lowe kept rates unchanged at 0.75% for the first meeting of 2020 as widely expected.

The main reason for the neutral stance was due to Australia’s stronger labour data and property market.

Australia is suffering from a slowing Chinese economy, as a result of the travel ban and reduction in domestic demand due to the coronavirus outbreak. This is especially aggravating given that China is Australia’s biggest trading partner.

Governor Lowe said: “With interest rates having already been reduced to a very low level and recognizing the long and variable lags in the transmission of monetary policy, the board decided to hold the cash rate steady.”

The odds of a rate cut might start to increase as the coronavirus epidemic continues to worsen.

Governor Lowe will be speaking at the National Press Club on Wednesday, followed by three hours of parliamentary testimony on Friday, when RBA’s updated quarterly forecasts will be released.

We believe that RBA may be forced to cut rates further if the situation worsens.

AUD/JPY could slide lower towards 71.20 after price broke the channel support, and is looking to retest the broken support turn resistance.