Sean Callow, the Senior Currency Strategist at Westpac, offered his view on the upcoming RBA monetary policy meeting, scheduled next Tuesday.

• “RBA Governor Lowe’s speech on unconventional monetary did not disappoint. He reiterated this month’s broadly upbeat outlook for the Australian economy but clarified how the RBA would approach unconventional monetary policy, should it be needed.
• We have already heard on multiple occasions that “negative interest rates in Australia are extraordinarily unlikely.” But there was plenty new in the discussion of QE. First was clarification that “QE becomes an option to be considered at a cash rate of 0.25 percent, but not before that.” Westpac’s estimate of the effective lower bound had been 0.5%, so we take this on board.
• The composition of any RBA QE program was also very notable – the Bank has “no appetite to undertake outright purchases of private sector assets.” The RBA has a philosophical problem with such public involvement in private markets which e.g. the BoJ, ECB, BoE and SNB do not. So now we know.
• In response to the speech, markets priced in greater risk of further RBA easing, albeit not for next week. Governor Lowe trod the line between keeping an easing bias to help prevent A$ appreciation and their growth forecasts which mean that QE is “not on our agenda at this point in time.
• Westpac remains more pessimistic than the RBA about the prospects for Australian growth and unemployment and now expects an additional cash rate cut, to 0.25% in June 2020 and commencement of QE in H2 2020.
• Governor Lowe’s balanced outlook fits the modest response on AUD/USD, which is barely lower over the week. As the chart shows, markets imply the quietest year ahead for the Aussie since mid-2007. It’s fair to say that that wager did not pan out.”