The relative strength of the Australian economy could lead speculators to the conclusion that the Reserve Bank of Australia may be a contender to follow the hawkish tilt that was obvious in the Fed’s June FOMC meeting. However, since then RBA Governor Lowe has suggested in his June keynote speech that the RBA sees no particular risk to the medium-term inflation outlook, economists at Rabobank think the central bank will cast a dovish light on its July policy announcements.
Still dovish?
“The RBA has long-standing concerns about the slow pace of wage growth and this was reiterated in Lowe’s June key note speech. Even before the crisis this was not far about record lows. Although the Australian economy has recently been performing better than expected and inflation expectations have crept higher (albeit only to the forecasts of the RBA), the view that there is excess capacity in the labour market provides the RBA a strong reason to anticipate that inflationary pressures will remain subdued over the medium-term.”
“Another reason for caution stems from more recent news regarding lockdowns and COVID-19. Beyond the pandemic the impact on trade from the worsened relationship with China is also a consideration for the RBA.”
“We have maintained for some that AUD/USD will likely struggle to maintain levels above 0.78 to a 6-month view and the recent strengthening in the value of the USD underpins this view. We have lowered our 1-month forecast from 0.77 to 0.76.”