The AUD/USD currency pair could not keep above the key level of 0.70. Having reached the local price peak of 0.7084, the price began to decline gradually but steadily and the day before yesterday, it turned out to be part of the 69th figure. Buyers of the AUD/USD pair could not stand the onslaught of bears, who enjoy support from the US currency and the soft position of the Reserve Bank of Australia. Today, the bearish mood has intensified after the speech of the head of the RBA Philip Lowe, who made a speech on the topic of inflation and monetary prospects.
In general, his speech was clearly "dovish" in nature, with one exception of low refuted rumors that the regulator will revise the target inflation rate downward. According to him, reducing the target may have a short-term advantage since the Central Bank will quickly achieve its goal. However, shifting target levels "is hardly a good way to achieve long-term trust", according to Lowe. Therefore, this target will remain at the same level in the range of 2-3%, and in turn, the Central Bank will do everything in their power to achieve it in the optimum time.
It follows that low-interest rates will also not be revised upwards for a long time. Lowe's plain text stated that both market participants and homeowners can count on a long period of keeping low rates and possible changes in this key can only be downward.
However, it is worth noting here that the head of the RBA is not in favor of easing monetary policy "at any cost" due to the presence of side effects of such a policy. He made it clear that members of the regulators are ready to cut the rate one more time this year but only if the measures were taken earlier (not only from the RBA but also from the government) do not bring the desired result.
I recall that the recently elected Australian Prime Minister Scott Morrison initiated the introduction of tax incentives for millions of households (for people with low and middle-income levels) in the hope of stimulating consumer spending growth. In addition, the head of the Australian Central Bank recalled the growth of the commodity market, which should also have a positive impact on the national economy. He also added that the decrease in the interest rate of the RBA led to the banking sector reducing the rates on mortgage loans, which, in turn, should help the recovery of the extremely weak housing market in Australia.
According to Lowe, all the above factors should ensure sufficient business and consumer activity. Otherwise, the RBA is ready to continue on the path of easing monetary policy. I note that this position of Philip Lowe fully meets market expectations. Thus, the probability of a rate reduction at the August meeting is only 20%, while the probability of an autumn decline to 0.75% (most likely in November) is almost 100%. In addition, according to a number of traders, the rate will again be reduced by 25 basis points, that is, to 0.5% by mid-2020. The probability of the implementation of this scenario is estimated at 50%.
Thus, Philip Lowe outlined the prospects for the monetary policy of the RBA today. Firstly, he ruled out a rate increase in the foreseeable future and at the same time, did not rule out the opposite step this fall. Secondly, the head of the regulator denied rumors about lowering the target inflationary level - but this fact served as a weak consolation for the AUD/USD bulls in view of maintaining the soft position of the RBA. Thirdly, Lowe raised the importance of key macroeconomic statistics. The dynamics of the main indicators will determine the likelihood of further steps of the RAB in the direction of easing monetary policy. First of all, we are talking about inflation indicators and labor market indicators. It is noteworthy that Lowe skeptically commented today on the growth in the number of employees. According to him, the average wage shows extremely weak growth, putting downward pressure on inflation. Therefore, in evaluating the data on the labor market, they should first pay attention to the inflation component, which is closely monitored by members of the Australian regulator.
The dovish rhetoric put pressure on the AUD/USD pair, especially against the background of a rising US dollar index. The pair approached the support level of 0.6950 (the Tenkan-sen line on the weekly chart), but the bears have not yet decided to storm the target. They are waiting for informational drivers. On the part of the Australian statistics, any news is not expected this week. Therefore, the main attention of traders will be focused on US events. If tomorrow's release on US GDP growth turns out to be better than expected, Aussie will most likely breakthrough above the support level and go to the next level, which is located in the area of annual lows in the price area of 0.6850.
