Quick Recap
The RBA cut rates as anticipated by most traders today in what looks like a low-risk insurance payment for the economy and domestic inflation.
But with no clear further easing bias and a signal that overall growth is still expected to continue "at a moderate pace" the preconditions for an Aussie dollar crash were absent. So it's hanging tough just above 75 cents.
What You Need To Know
The RBA has cut rates by 25 basis points to an all-time record of 1.5% in what looks very much like a move to insure the economy against any chance of an economic slowdown in China and elsewhere.
The RBA highlighted that "Chinese policymakers are supporting the near-term growth outlook, but the underlying pace of China's growth appears to be moderating".
That's a risk to the economic outlook.
But elsewhere the RBA seems more upbeat about the prospects for the domestic economy. The governor's statement said:
In Australia, recent data suggest that overall growth is continuing at a moderate pace, despite a very large decline in business investment. Other areas of domestic demand, as well as exports, have been expanding at a pace at or above trend. Labour market indicators continue to be somewhat mixed, but are consistent with a modest pace of expansion in employment in the near term.
So it's a decision that looks aimed at signalling to consumers and business that the RBA remains serious about fighting inflation here in Australia even if the global inflationary backdrop continues.
"Recent data confirm that inflation remains quite low. Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time," governor Stevens said.
On the Aussie dollar the RBA seemed more conflicted signalling a lower Aussie is doing its job still but it is complicating further improvements in growth from here.
Ont the combination of low interest rates and the Aussie dollar governor Stevens said (my emphasis):
"Low interest rates have been supporting domestic demand and the lower exchange rate since 2013 is helping the traded sector. Financial institutions are in a position to lend for worthwhile purposes. These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this."
The RBA is staffed by economist after all so this "on the one hand, on the other hand" focus on the Aussie isn't entirely unexpected. Perhaps what it does signal however is that like their trans-tasman conterparts at the RBNZ the RBA may become a little more vocal should the AUDUSD, the crosses, and the TWI, continue to rally from here.
Overall it's a well crafted statement that delivers insurance for the economy, has the door slighthly ajar to more cuts should the economy need it (low inflation or an AUDUSD appreciation), and it clears the deck for Phil Lowe to take over as governor with a clean slate.
What the charts say on the Aussie dollar
Support did as support does and held the Aussie with today's low bang on the bottom of the current daily channel.
That reinforces the strength of the channel but the 4 hours charts suggest a potential short term break and test toward 0.7420/50. A break of this would suggest a run to 0.7400 which looks very strong.
The reality is that where the Aussie goes now is going to be very dependent on whether the US dollars recovery, off the 61.8% retracement level in DXY terms, of the recent rally continues. Or as I expect in coming days it reverses and head lower once more.
One thing however.
This statement makes the release of the RBA's quarterly Statement on Monetary Policy on Friday a critical release for the market as it will give the RBA a larger canvas to paint the picture of what it thinks on the economy, inflation, and the Aussie dollar.
Originally published by AxiTrader