Australia could be the next country to launch a quantitative easing program, according to the latest opinion of Westpac, one of the oldest banks in Australia. This information slightly affected the AUD/USD exchange rate, slightly weakening the Australian currency.
Currently, the main interest rate in Australia is 0.75 percent. It has been reduced three times since June this year. According to the board of the Reserve Bank of Australia, global changes justify a longer period of low interest rates to achieve full employment and an inflation target. Meanwhile, Westpac Bank has a completely different opinion on this subject.
According to published note, interest rates in Australia are expected to fall to 0.25 percent in June 2020. The launch of the QE program would take place in the second half of 2020, i.e. immediately after interest rate cuts. Where does this scenario come from? Well, after the speech on Tuesday of the RBA’s head Philip Lowe, who said that QE is becoming an option to consider at an interest rate of 0.25 percent. However, Lowe added that the threshold for introducing such a stimulus program for the economy has not yet been reached and it is unlikely to happen in the near future.
Westpac maintains, however, that RBA will decide to cut in February and then in June 2020. The RBA would also introduce QE at the beginning of AUD 2-3 billion per month, which may have a stronger impact on the economy than interest rate cuts.
AUD/USD daily chart. Conotoxia trading platform.
There is still a long way to go to the possible introduction of QE, and at the moment the AUD/USD exchange rate is still in consolidation, which looks like a triangle pattern. Its upper limit is still potential resistance for the market, and its lower limit has been supporting buyers since the beginning of the year. It remains therefore to wait for a potential break out of the described formation, because only then may another major trend appear.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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