AUD/USD recovered overnight as Dollar was dragged down by heavy decline in treasury yields. US 10-year yield ended down as much as -0.097 at 2.296, showing steep downside acceleration. However, recovery in AUD/USD was relatively limited and it’s indeed back under pressure today as Westpac now forecasts three rate cuts by RBA this year, with possibility to start QE in 2020.
On the economy, Westpac sees unemployment rate drifting up to 5.4% by year end, growth as 2.2% for 2019 and underlying inflation at merely 1.4%. Housing market is expected to stay weak despite some stabilization. After RBA Governor Philip Lowe’s speech earlier this week Westpac believed that a June cut is a certain, and the second will come in August. Based on the weak outlook, a third in November to 0.75% is expected too.
Westpac also noted that some form of Quantitative Easing is an option for RBA if there is need to ease policy further. For now, RBA”s own research suggests that policy transmission mechanism will still have some effect at a cash rate below 1%. However, in 2020, the case for QE will become more attractive.
