What does lockdown mean for next week’s RBA meeting?

In early June, two local banks, rightly impressed by the strength of the economic recovery brought forward the date they expected the RBA to start rate hikes, to early/mid-2023, in contrast to the RBA’s “2024 at the earliest” forward guidance.

Trader 1

Following the release of jobs data for May in mid-June, which saw the unemployment rate fall to pre-pandemic levels at 5.1%, a third local bank brought forward its RBA lift-off expectations date to November 2022.

Today after a fourth Australian capital city Brisbane joined three others in lockdown to thwart the spread of the Delta variant, there are now over 12 million Australians locked down unable to leave their homes, except for essential reasons including shopping and exercise.

The result of the outbreak has been a dramatic loss of reputation for the Australian Federal government following its tardy vaccine rollout and also for the NSW government given its delayed decision to lockdown the suburbs at the center of the Sydney outbreak.

The risks of wider and extended lockdowns are likely to warrant consideration at next Tuesday's RBA meeting. More so given the July meeting has been set up as a key one for a decision on the future direction of monetary policy.

As such, the RBA is likely to emphasise that considerable uncertainty remains and that substantial support is still required, mindful that important financial support programs such as Jobkeeper expired in late March.

It may also take the opportunity to push back against the more aggressive pricing of interest rate hikes that have followed the big bank's calls. As of yesterday, the OIS curve had 38bp of hikes priced for year-end 2022 and 71bp for year-end 2023.

While this would be a welcome development for the local equity market, it would be an unwelcome turn of events for the AUDUSD, which remains out of favour following the more hawkish FOMC meeting.

Technically the AUDUSD remains at risk of a deeper decline and to negate downside risks it needs to see a sustained recovery back above the 200-day ma at .7660 followed by a break and daily close above last week’s .7616 high. Aware that until this occurs, allow for a decline towards .7200c.

What does lockdown mean for next week’s RBA meeting

Source Tradingview. The figures stated areas of the 29th of June 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

More from AUD

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.