The Reserve Bank of Australia (RBA) is all set to announce the first full reaction to the coronavirus (COVID-19) at 3:30 am GMT on Tuesday. Although the central bank is widely anticipated not to announce any changes into its present monetary policies, speculations concerning the G7 call earlier triggered the hopes of a rate cut from the Aussie central banker. However, the recent comments from the Australian PM Morrison indicate the nation will prefer fiscal measures over the monetary policy and hence no rate cut can be anticipated.
It should also be noted that all options are open and the move by the Aussie central bank will direct market players towards expecting such actions from the rest of the global central bankers. As a result, today’s RBA becomes the key to watch.
In contrast to the Australia and New Zealand Banking Group (ANZ), who changed that calls to expect 0.50% rate cut, analysts at TD Securities anticipate no rate change as they said:
Tuesday’s RBA Board Meeting should see the Bank keep the cash rate on hold at 0.75%. Our work has shown that over the past 20 years the Bank has only cut once in Mar. Further, the Bank has refrained from pre-empting GDP prints, particularly early in the year. So far the Bank’s message has been that the hurdle to cutting is high, pointing to the long and variable lags of policy. While we don’t expect the Bank to express coronavirus yet, the Bank’s take on the rise in the employment rate will be worth noting.
Westpac, on the other hand, joins the league of the bears while saying:
Westpac expects a -25bp cash rate cut to 0.50% but economists are divided, the Bloomberg survey finding a narrow preference for no change. Market pricing, however, is around 100% for -25bp. This comes after plunging PMI data from China, an escalating spread of COVID-19 globally, and ahead of an expected FOMC rate cut at their March meeting. This should be enough to nudge a reluctant RBA into action.
How could the RBA decision affect AUD/USD?
Given the high expectations of a global stimulus, any disappointments will have larger repercussions. In a case of no rate cut, the pair can witness short-term rise but the same should be followed by upbeat comments in the rate statement, an absence of which can recall the latest lows surrounding 0.6430. On the contrary, a win-win game, backed by fiscal stimulus, should help the quote extend the recent recovery towards early-February lows near 0.6660.
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About the RBA rate decision
RBA Interest Rate Decision is announced by the Reserve Bank of Australia. If the RBA is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the AUD. Likewise, if the RBA has a dovish view on the Australian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.