Key Statement Changes to Note

At the bank’s October rates meeting, held overnight, the Reserve Bank of Australia opted to hold its monetary policy unchanged. While the move was largely expected and the bank’s statement broadly the same as last time around, there were some subtle changes to the statement which conveyed a more dovish tone than the September meeting, pulling AUD lower.

More Actionable on Easing

One of the key changes to the statement, which has increased expectations that the RBA could ease as soon as next month was found in the ending of the statement. In September, the statement concluded with “the Board continues to consider how further monetary measures could support the recovery”. However, in October, this phrase changed to “the Board continues to consider how additional monetary easing could support jobs as the economy opens up further”. This phrase has a much more actionable tone to it and suggests that the RBA is moving closer to easing further.

More Decisive on Labour Market

The language around the labour market has also taken on a more decisive tone with the RBA now saying that “the Board views addressing the high rate of unemployment as an important national priority”, again marking a shift from the September statement which said “it is likely to be some months before a meaningful recovery in the labour market is under way”.

In terms of the bank’s assessment of the recovery, the RBA noted the that rebound is “likely to be both uneven and bumpy” ad reassured investors that it will “will maintain a highly accommodative setting as long as is required”, adding that “fiscal and monetary support will be required for some time given the outlook for the economy”. However, the RBA was keen to stress that the “ Bank's policy package is working as expected and is underpinning very low borrowing costs and the supply of credit to households and businesses” adding that there is a “Very high level of liquidity in the Australian financial system and borrowing costs are at record low”.

Second Wave on Watch

The key threat to the economy now is from the growing second wave of the virus, both domestically and globally. The RBA notes that the second lockdown in Victoria has damaged output there and further local lockdowns would have a similar impact while lockdowns elsewhere in the globe threaten demand for Australian exports. With this in mind, traders continue to price in further RBA easing before the year end.

Technical Views

AUDUSD (Bullish above $.7031)

From a technical viewpoint. AUDUSD continues to correct lower within the bearish channel which has developed following the reversal from the $.74 region. While support at $.7031 holds, the channel can be viewed as a bear flag, suggesting an eventual topside break and continuation of the bullish move off the year’s lows.

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