Aussie under rate cut pressure

Summary:

• Minutes as well as RBA’s Lowe pointed to a rate cut possibility as soon as next month
• Australian banking regulator signals plans to relax serviceability assessments for new residential mortgage loans applications
• US Commerce Department grants a 90-day for some firms doing business with Huawei

Less strict rules in mortgage loans applications

Both Antipodean dollars are on the back foot this morning with the Aussie dollar leading the losses and being down almost 0.5% against its US counterpart. This is a result of several developments we were offered overnight. First and foremost, APRA, Australian banking regulator, signalled that it might relax serviceability assessments for new residential mortgage loan applications. In practice, such a move would resemble a rate decrease, allowing buyers to borrow more in order to fund their purchases. In the statement the regulator wrote “APRA has proposed removing its guidance that lenders should assess whether borrowers can afford their repayment obligations using a minimum interest rate of at least 7%”. Instead, the watchdog has come up with a proposal of a new rate being 2.5% above the prevailing mortgage rates. This shift has been justified by the outlook of low interest rates with tiny odds to see substantial rate increases in the foreseeable future.

Clear dovish bias

On top of this communique, we were also offered the RBA minutes from a May’s meeting where the central bank decided to scrap a line that the board saw no strong case for a near-term move in policy. In addition, the minutes added that it needed to continue paying close attention to the labour market. Let us remind that we got a rise unemployment recently but such a move was not considered as a change in the underlying (downward) trend. The RBA also admitted that price growth over the first quarter proved to be well below expectations with the housing market having a disinflationary effect. Risks to the global economy were assessed as tilted to the downside with significant uncertainty over the outlook for China and trade tensions. The third reason behind Aussie’s underperformance was a speech delivered by RBA Governor Lowe. He said openly that the central bank would consider cutting interest rates at a meeting in June, adding that lower rates would support employment and lift inflation toward the target. Lowe also referred to the elections taking place in Australia in the past weekend and said that this event had no impact on monetary policy decisions. RBA Governor agreed that a change put forward by the APRA (it has been mentioned earlier in this article) would be complementary to a rate cut. In the aftermath of these events the market-based likelihood of a rate cut in June has increased to 71% from below 60% on Monday. The RBA’s next meeting will be held on June 4.

The longer-term outlook for the Aussie does not look well. The AUDUSD is dancing around the lower boundary of the bearish channel. A breakdown of this area would see the pair sliding toward its post-flash-crash low nearby 0.6785. Looking beyond this line, another support might be found in the vicinity of 0.6350. Source: xStation5

In the other news:

• US Commerce Department granted a 90-day relief for certain US broadband companies and wireless customers using Huawei’s equipment, as Bloomberg reports; “This license will allow operations to continue for existing Huawei mobile phone users and rural broadband networks”, Commerce Secretary Wilbur Ross said on Monday

• Fed’s Powell said it was premature to make a judgment on trade and tariff impacts on a path for monetary policy

• New Zealand’s credit card spending rose 0.6% MoM in April