Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.2% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.


RBA extends low rate horizon at May meeting

Sean MacLean
Research Strategist
5 May 2020
There was modest selling in AUDUSD after the RBA meeting this afternoon, when it was announced historically low rates are here to stay over a long horizon.

15-min chart: AUDUSD saw modest selling on the RBA announcement at 14:30 AEST. Chart source data: Metaquotes MT5

The RBA extended the lifetime of historically low rates this afternoon, announcing the board will not raise the cash rate target until there is confidence the labour market is returning to full employment and that inflation will sustainably remain in the 2 - 3% target band.

An expanded horizon for a cash rate of 0.25% was a dovish addition to the RBA’s outlook. Holding rates at historically low levels until these two requirements are met expands the horizon until rates will rise. Unemployment is expected to peak at 10% in the coming months and could remain above 7% even at the end of 2021. It could be years until the RBA has confidence Australia is moving towards full employment, estimated at 4%.

Inflation is unlikely to reach the target 2% - 3% band for some time yet. Q2 CPI is expected to print negative in June, mostly due to tumbling oil prices and the introduction of free childcare. The RBA sees inflation rising to 1% - 1.5% in 2021 before slowly rising from there.

The statement had a few other dovish points, including: broadened collateral for open market operations and a willingness to increase asset purchases if needed.

A big part of the AUD outlook now comes down to central bank divergence: who is the least dovish? The RBA’s asset-purchasing program is certainly less aggressive than that of the Federal Reserve or the Bank of England. Then next door in New Zealand, RBNZ Governor Adrian Orr recently left the door open to negative interest rates. This has seen increased divergence between the AUD and NZD. AUDNZD is trading today at 1.0630 after lows of 1.00 in March.

Despite a bearish RBA announcement, AUDUSD technicals remain bullish. In yesterday’s session, the 20-EMA (blue) crossed above the 50-EMA (purple) while the daily candle shaped up as a bullish hammer. The bullish signals propelled this morning’s rally. AUDUSD is now testing the 5-EMA. Closing above here will strengthen a short-term bullish bias.

Daily chart: AUDUSD technicals look bullish: the 20-day EMA (blue) has crossed over the 50-EMA (purple), while a hammer candle appeared on the daily chart yesterday. Chart source data: Metaquotes MT5.

Ready to trade?

It's quick and easy to get started. Apply in minutes with our simple application process.

The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research we will not seek to take any advantage before providing it to our clients.

Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.