7 Aug 2013
No more rate cuts for Australia? Interesting thought, not yet reality.
FXstreet.com (Barcelona) - The RBA’s policy statement Tuesday was being parsed and interpreted throughout the day. Some saw the statement as a warning of no more rate cuts. Are they on to something or just making conversation?
What will the RBA do next? Not even they know.
While it makes good fodder for conversation and may draw the eyeballs of concerned Australians as well as interested financial types from around the world, to read the policy statement from the Reserve Bank of Australia and interpret the language on its face value might be an exercise in futility.
We know from the recent stream of downbeat data that Australia’s current situation is not great. However, as the RBA pointed out, there are some buds sprouting up through the sun-baked soil. They are careful to cite rising home prices as a sign of hope in almost every public utterance. The most consistent message from the aggregate of the data and the RBA’s chatter is that things are not good right now and, outside of what could only be deemed a surprising upside turnaround in China’s economic direction, there is not a great deal upon which the Aussie economic bulls can hang their hats.
So, why did the RBA alter their policy statement in such a way as to spark all of this debate? The easy and optimistic answer is that they were simply cutting rates now and wanting to leave their options open for more or less stimulative action going forward depending on circumstances. We could leave it at that and be just as accurate as any of the myriad of experts that have come out of the woodwork in the last 24 hours. However, there is another more cynical take on things to consider.
Perhaps like other powerful people / entities the RBA and the entire Australian government does not want to come off as helpless or not in control of their own destiny when confronted with challenges. They have admitted recently that they have to make / enable structural changes to their own economy so that they can become less dependent on China as a consumer of Australian exported natural resources. That sentiment was expressed many times in the last few months by the RBA and Australia’s political leadership and was reported on by this website in the days leading up to yesterday’s announcement. Did all of those long-term structural changes get enacted in the last 48 hours? No way!
As noted above, the skeptic’s theory is that they want to give their own constituents and the global financial community that they are not desperate, not helpless and are still confidently manning the wheel of the ship. They must be hoping among hope that the ship they are steering is not the Titanic, Jr. If China’s economic growth continues to slow down, that worst case for Australia may be the reality.
What can the technicals tell us about the future for Australia?
Technicians still believe a move to the Fibonacci-generated downside target at 0.8812 is still in the cards for AUD/USD. Once that level is tested, they note, a more substantial corrective bounce up to 0.9226 is likely. Keep in mind, though, that any upside move off of the downside targets will likely be only corrective in nature – meaning there will still be more downside to come once the correction runs its course. By most technicians accounts, there will be a series of up and down waves in the AUD/USD over the short, intermediate and long-term, but that the overall trend should be lower over the long term.
How does that translate back into economic terms? For the long-term and until the entire economic transition is set in motion (not completed, just set in steady forward motion – which almost certainly take years to occur), the Australian economy will clearly be ebbing and flowing – but in a flat to downward trend.
What will the RBA do next? Not even they know.
While it makes good fodder for conversation and may draw the eyeballs of concerned Australians as well as interested financial types from around the world, to read the policy statement from the Reserve Bank of Australia and interpret the language on its face value might be an exercise in futility.
We know from the recent stream of downbeat data that Australia’s current situation is not great. However, as the RBA pointed out, there are some buds sprouting up through the sun-baked soil. They are careful to cite rising home prices as a sign of hope in almost every public utterance. The most consistent message from the aggregate of the data and the RBA’s chatter is that things are not good right now and, outside of what could only be deemed a surprising upside turnaround in China’s economic direction, there is not a great deal upon which the Aussie economic bulls can hang their hats.
So, why did the RBA alter their policy statement in such a way as to spark all of this debate? The easy and optimistic answer is that they were simply cutting rates now and wanting to leave their options open for more or less stimulative action going forward depending on circumstances. We could leave it at that and be just as accurate as any of the myriad of experts that have come out of the woodwork in the last 24 hours. However, there is another more cynical take on things to consider.
Perhaps like other powerful people / entities the RBA and the entire Australian government does not want to come off as helpless or not in control of their own destiny when confronted with challenges. They have admitted recently that they have to make / enable structural changes to their own economy so that they can become less dependent on China as a consumer of Australian exported natural resources. That sentiment was expressed many times in the last few months by the RBA and Australia’s political leadership and was reported on by this website in the days leading up to yesterday’s announcement. Did all of those long-term structural changes get enacted in the last 48 hours? No way!
As noted above, the skeptic’s theory is that they want to give their own constituents and the global financial community that they are not desperate, not helpless and are still confidently manning the wheel of the ship. They must be hoping among hope that the ship they are steering is not the Titanic, Jr. If China’s economic growth continues to slow down, that worst case for Australia may be the reality.
What can the technicals tell us about the future for Australia?
Technicians still believe a move to the Fibonacci-generated downside target at 0.8812 is still in the cards for AUD/USD. Once that level is tested, they note, a more substantial corrective bounce up to 0.9226 is likely. Keep in mind, though, that any upside move off of the downside targets will likely be only corrective in nature – meaning there will still be more downside to come once the correction runs its course. By most technicians accounts, there will be a series of up and down waves in the AUD/USD over the short, intermediate and long-term, but that the overall trend should be lower over the long term.
How does that translate back into economic terms? For the long-term and until the entire economic transition is set in motion (not completed, just set in steady forward motion – which almost certainly take years to occur), the Australian economy will clearly be ebbing and flowing – but in a flat to downward trend.