NEWS : AUD: the long-term outlook remains clouded – ING

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AUD: the long-term outlook remains clouded – ING

“There are good reasons for the Reserve Bank of Australia to cut at its meeting on Tuesday. Good ones to pause too. This is a hard one to call. One thing’s clear, they haven’t stopped easing yet,” noted ING’s Chief Economist Head of Research, Asia-Pacific – Robert Carnell, and Francesco Pesole – FX Strategist.

Key quotes:

“Whether or not the RBA decides that a back-to-back cut is warranted at this meeting, or whether they decide to leave things for a bit and ease further at a future meeting, say August, will make very little difference to the economy. Nor will it make much difference to the unemployment rate outlook, and consequently the future for inflation relative to its 2-3% target.”

“We believe that, on the day, the balance of risks for the AUD appears skewed to the upside, considering that the markets may have overstated (78%) the probability of a rate cut at this meeting. Furthermore, the persistent market’s short positioning on the AUD suggests a higher potential for upside pressure as positions are squared.”

“In the longer term, external factors will likely be the predominant drivers of AUD/USD and the lack of a clear resolution in the US-China trade tensions suggests that a re-escalation is still possible. A cut in July or August by the RBA may, therefore, have a limited impact on the long-term AUD outlook. As long as the central bank maintains its easing bias, the upside potential for AUD will likely be limited, leaving it to trade-related news to move the market.

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