The Cash Rate is the interest rate that the Reserve Bank of Australia (RBA) charges commercial banks for a loan. This operation provides a bulk of liquidity to the banking system. Short term interest rates are the paramount factor in currency valuation as it is highly correlated with the economic outlook because its changes can have an impact on both inflation and recession.
The core objective of RBA is to set lay down policies aimed at achieving stable inflation, maintain financial stability, full employment, and contribute to the economic development and wealth of the inhabitants of Australia.
Australia was, until recently, heralded for effectively subduing Covid-19, through strict border closures, prolonged lockdowns, the country was able to avoid a large-scale outbreak. The Delta variant has however changed the rhythm, with more than half of Australia’s 25 million inhabitants living under very harsh restrictions, which includes overnight curfews, travel limits of only three miles from home, and limits on outdoor daily exercise to few hours, with an average of 1,400 cases are recorded daily, as Australia’s delayed vaccination program is becoming more evident by the day.
The Reserve Bank of Australia last month held its Official Cash Rate at 0.10% after it was changed to 0.25% in the month of November 2020, as early glimpses of a rising rate more unlikely as a result of the recent lockdown and the potential ripple effect on the inhabitants of Australia.
The key drivers that would shape the economy going forward, haven took a downturn as a result of the Delta variant would be increasing rate of vaccination and easing of restrictions on economic activity, as progress on vaccination is beginning to see the daylight with more than 40% of the inhabitant double vaccinated and about 1.25% of the populated vaccinated daily, another factor underpinning the view that the economy will bounce back is the substantial income support being provided by the Australian Government with the 2021-22 budget committing an additional $41 billion in direct economic support bringing total support since the beginning of the pandemic to $291 billion.
The Australian government has announced several stimuli and relief packages, designed to sustain small businesses through the coronavirus pandemic and keep employees at work. The government stated that the measures are temporary, targeted, and scalable. The main areas of the support currently available to small businesses include; SME Recovery Loan Scheme, Jobmaker Hiring Credit, Tax relief, increase in the instant asset write-off threshold and accelerated depreciation and boosting apprenticeship commencements wage subsidy, more so, with consumption restricted by lockdown, the aggregate household saving rate will increase again in the September quarter, which implies that people will have more money in the bank than they did pre-Delta, as consumer spending will play a major role as the economy starts to rebound.
Across-board, a lower Cash rate will warrant recovery to the broader economy by improving cash flow, encouraging spending and investment, which will increase economic activity and boost employment.
Economist has project 5.7% real GDP growth for 2021, regardless, traders should brace themselves up for a period of high volatility as the Cash Rate report often have a great impact on the FOREX market. An increase in Cash Rate will usually strengthen the AUD (Aussie Dollar), while its decrease will usually weaken the AUD (Australian Dollar). Traders should always be aware that volatile markets provide great opportunities for making profits, as the increase in volatility can cause market swings for traders to capitalize on.
The currency pairs that include the AUD (Australian dollar) are mostly affected by the data release. The pairs include AUDUSD, AUDCAD, AUDCHF, AUDJPY, AUDNZD, etc.
Time Schedule for the next Cash Rate Report:
Date: Tuesday. September 7th, 2021.
Time: 5:30am (GMT + 1)
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