Westpac predicts the Reserve Bank won’t cut interest rates until the Federal Government hands down its budget.
Westpac says that it is more probable for an interest rate cut in November, as the central bank will want to scope out the Government’s full response to the pandemic.
Westpac chief economist Bill Evans held back his initial predictions of cash rate threading lower on October 6, saying the Reserve Bank will hold off on its monetary policy decisions to see what economic support will be outlined in the 2020 Federal Budget.
Last Wednesday, Westpac tipped the RBA would cut the overnight cash rate 15 basis points to 0.1 percent alongside its other policy measures on budget day as part of the “Team Australia” response to the crisis.
Sparked by a speech from deputy governor Guy Debelle on September 22, the RBA has flirted with the idea of another cash rate cut. He said, the Central Bank was considering further measures to combat the recession cause by the current pandemic.
Mr. Evans said the RBA changing policy settings the same day could detract from the Government’s ability to sell the budget.
“A central bank moving on budget day could be interpreted by the Government and the bank itself as diverting attention away from the budget and complicating the Government’s task in selling the budget,” he said.
Interest rate cuts are used by the RBA to ease pressure facing the economy when there is a downturn.
It allows banks and lenders to access liquidity at a lower rate, which can then be passed onto households and businesses in the form of cheaper loans.
On November 3, the Central bank is expected to change its policy settings with its three-year bond yield target, term funding facility and the rate it pays on exchange settlement balances all likely to move to a rate position of 0.1 percent.
“We expect that the policy initiatives that we have outlined will now be introduced on November 3, giving the government adequate time to sell its budget without any distractions coming from monetary policy,” Mr. Evans said.
On the daily charts of AUD/USD, the pair opened at 0.7028 on Monday morning in Asia session.
After the losses of the Aussie dollar last week due to a strengthening dollar, the price went down just touching the support level at 0.70157. The price bounced back on Monday the pair has seen gains.
Amidst the ongoing recession in Australia, the economy is trying to pick up where it has left off. Yet, it is still to soon to say where the price will end today as investors are looking at the dollar as a safe-haven currency once again.
There might be a correction any time within the week and the price might just break past the support level. Aussie bears are just waiting for a confirmation for the breakdown. Most are staying on the sidelines.
The AUD/USD pair was up 0.37% to 0.7053
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