(03 September 2019) DAILY MARKET BRIEF 2： better bid after RBA rate decision

As broadly expected the Reserve Bank of Australia left the Official Cash rate at record low 1% at its September meeting. Little changes were made to the statement as the RBA continued to emphasize the lack of inflation pressure, as it expects inflation “to be a little under 2 per cent over 2020 and a little above 2 per cent over 2021.” Regarding the domestic conditions, the central bank noted that lower than expected in the first half of year but expect a gradual acceleration over the next couple of years. Finally, the central bank left the door wide open for further monetary easing as made a small change to the last sentence of the statement as it broaden the conditionality of a potential rate cut beyond developments of the labour market. “The Board will continue to monitor developments, including in the labour market, and ease monetary policy further if needed to support sustainable growth in the economy and the achievement of the inflation target over time.”
Despite a clear easing bias from the RBA, the Australian dollar appreciated against the greenback with AUD/USD climbing to 0.6718, up 0.50% from its pre-rate decision level. This bounce back suggests that market participants were expecting a much dovish statement. Overall, we maintain our dovish bias regarding AUD/USD. More rate cuts are down the road, as the RBA will try to soften the impact of a slowing Chinese economy.