As widely expected, the Reserve bank of Australia left its official cash rate target unchanged at 1.50%. The overall tone of the statement remains positive with Governor Lowe staying positive on both Australian and global economic developments. However, he expressed reserves about the outlook for household consumption as “Household income has been growing slowly and debt levels are high”. The central bank remained cautious about the inflation outlook against the backdrop of “low growth in labour costs and strong competition in retailing”, but expects a gradual pick-up in the course of the year.
Nevertheless, the trade war initiated by the United States could dampen significantly Australia’s economic outlook. Indeed, as an open economy that relies heavily on exports, a global trade war could have dramatic consequences; especially should the US impose trade tariffs on Chinese products, Australia’s biggest trade partner.
After rising more than 1% on Monday, AUD/USD edged lower on Tuesday as investors take a step back to assess how much juice is left in the Aussie. Yesterday, the currency pair tumbled on the 0.7660 resistance level (Fibonacci 61.8% on April-May debasement). A break of this resistance would open the door towards the following one that stands at 0.7813 (high from April 19th).
By Arnaud Masset
