admin The Australian Dollar rose Tuesday after the Reserve Bank of Australia (RBA) played down the risk of it resorting to quantitative easing (QE) next year, while Sterling retreated in response to pre-election opinion polls that helped force the Pound-to-Aussie rate into a test of its intraday pivot point on the charts.
Australia’s Dollar welcomed comments from RBA Governor Philip Lowe Tuesday, who told the Annual Australian Business Economists Dinner in Sydney that quantitative easing is “not on our agenda at this point in time” and that “negative interest rates in Australia are extraordinarily unlikely.”
Markets had begun to worry that both might appear on the RBA’s agenda at some stage in 2020 because inflation remains below the target, the labour market has begun to deteriorate even after the bank cut interest rates three times this year and the much-vaunted ‘phase one deal’ to temporarily end the U.S.-China trade war remains elusive.
“Lowe essentially ruled out negative interest rates in Australia and the purchase of private sector assets. According to Lowe, QE becomes an option to be considered at a cash rate of 0.25% (current cash rate: 0.75%), but not before that,” says Elias Haddad, a strategist at Commonwealth Bank of Australia (CBA). “Bottom line: AUD/USD has scope to edge a bit higher to near 0.6815‑0.6830 in the short‑term. Beyond today’s speech by Lowe, AUD/USD will remain confined to a 0.6700 and 0.6930 (200‑day moving average) range until we have more clarity on an initial US‑China trade agreement.”
Minutes of the November RBA meeting revealed last week that policymakers saw a clear case for a fourth 2019 rate cut this month but opted to wait and further observe the impact that earlier reductions in the cash rate, which has fallen from 1.5% to 0.75% this year, have had on the economy. The bank said “only gradual progress having been made” toward its objectives is reason enough to want to cut rates again but refrained from doing that.
“RBA Governor Philip Lowe set a high bar for launching quantitative easing (QE) in Australia. But against a backdrop of stubbornly-low inflation and rising unemployment, we suspect that it won’t be long before it is cleared,” says Simona Gambarini at Capital Economics. “We have pencilled in two 25bp cuts next year, one in February and one in April. That would bring Australia’s policy rate to 0.25%, which Mr Lowe indicated as the presumed floor for interest rates and the level at which the Bank would start considering QE.”
Source: poundstelinglive.com
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