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Reserve Bank of Australia Thinks Recession May Be Over

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The best guess of Reserve Bank of Australia is that the economy’s growth in September will end Australia’s recession.  

At senate estimates on Tuesday, RBA deputy governor Guy Debelle said Victoria’s 12-week lockdown would not hinder the nation’s recovery from its first economic recession in over three decades. 

“Our best guess is it looks like the September quarter for the country recorded positive growth rather than slightly negative,” Dr. Debelle said. 

“As best as we can tell, the growth elsewhere in the country was more than the drag from Victoria, and possibly the drag from Victoria was a little less than what we guessed back in August.” 

The RBA is expecting gross domestic product (GDP) for the September quarter will track positive, following its steep fall in the previous quarter by 7 percent. 

A technical recession is two consecutive quarters of negative GDP growth. 

Dr. Debelle said government spending would need to continue until unemployment levels were “comfortably” below 6 percent, noting a premature tapering of economic aid would hinder recovery efforts. 

The RBA is expected to reveal at its board meeting next Tuesday if it will further cut interest rates to alleviate pressures facing the economy. 

A number of economists believe the central bank will slash the cash rate to 0.1 percent and implement further quantitative easing measures to help lift the economy. 

When questioned by Labor senate Katy Gallagher on the pandemic’s negative impact on wage growth, Dr. Debelle said getting people back into the labour market should be more of a priority than if wages were expected to rise in the near future. 

“The main objective is to get people back into employment,” Dr. Debelle said.  

The central bank said regions such as Far Northern Queensland, which are heavily reliant on overseas tourism, will likely struggle while international borders remain closed. 

Dr. Debelle said services sectors such as entertainment would continue to be affected by the pandemic, while construction and industrial sectors were experiencing increased demand. 

The RBA is expected to release new economic forecasts next Friday in its quarterly statement on monetary policy. 

TECHNICAL OUTLOOK 

 

In the daily charts of AUD/USD, the pair edged up early Wednesday morning in Sydney session. 

The pair edged up 0.03% to 0.7130. The AUD’s gains were capped by data showing that Australia’s Consumer Price Index (CPI) rose 1.6% quarter-on-quarter during the previous quarter, higher than the 1.5% predicted forecasts. 

The Reserve Bank of Australia is also tipped to announce lower interest rates and increased government debt purchases after its next meeting on November 3. 

As what we can see in the daily charts, the pair is still trading inside the support level at 0.6995 and resistance level 0.74129. The Aussie dollars strength may be backed up by the weakening of the dollar due to the uncertainty of investors that is caused by the upcoming U.S. Presidential Elections. Further analysis is needed and always proceed with pre-caution in trading pairs related to the U.S. dollar. Volatility spikes may be experienced in the coming trading days. 

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