Published: Thu, May 23, 2019
Finance | By Loren Pratt

Australian PM meets with chief as stimulus calls grow

Australian PM meets with chief as stimulus calls grow

In his speech "the Economic Outlook and Monetary Policy", released today, he gives the strong guidance that "at our meeting in two weeks' time, we will consider the case for lower rates". The Aussie dollar dropped off to $0.6883, from around $0.6910, and threatened to re-test the recent 19-week low of $0.6865.

The RBA looks as if it could cut interest rates but has yet to do so and if there is a recovery in Sino-American relations, that would probably jolt the Australian economy higher.

RBA Governor Philip Lowe all but said as much in a speech on Tuesday, prompting all four of Australia's major banks to tip a June move. Some economists had said the RBA's decision not to cut on May was to avoid becoming involved in the campaign.

Any indication that interest rates are at risk of a cut before the end of the year may drive the US Dollar lower across the board. "The most likely direction for AUD/USD again appears lower, at around 67-68 cents over coming months".

A 25-basis-point rate cut would take the RBA's cash rate target to a fresh record low of 1.25 per cent, after almost three years on hold at 1.5 per cent, following a rate cut in August 2016.

Lowe didn't mention Australia's May 18 election, which led to a surprise victory for Scott Morrison's coalition government.

Over the past three years, household disposable income has increased at an average pace of just 2.75%, compared with an average 6% over the preceding decade. I wouldn't be surprised if they held off for another month. Break below will see drag till 88.6% Fib at 0.68. "This recent weakness partly reflects the slowing in the Chinese economy, but the increases in USA and Chinese tariffs are also a factor".

The ore is Australia's largest export earner and the surge in prices is gifting the country with record trade surpluses, while boosting miners' profits and tax receipts.

It is extremely unusual for the Reserve Bank to explicitly flag that it will be discussing lower interest rates at its upcoming meeting, hence making it extremely likely that discussion will result in a rate cut.

But a week after the RBA board meeting, official data showed the unemployment rate rose in April to a worse-than-expected 5.2 per cent.

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