The RBA left cash rate unchanged on Tuesday but gave clear-cut indications that it wants to float additional easing measures at the next meeting to stimulate hiring.

“The Board continues to consider how additional monetary easing could support jobs as the economy opens up further”, the policy statement said.

Three out of four major Australian banks - Westpac, NAB and ANZ expect the central bank to cut the cash rate in November.

The implicit pledge of the RBA to reduce borrowing costs was made just before the release of the government's budget for 2020/21. The government is expected to ramp up borrowing, but accommodative policy of the RBA should help the government bond market to absorb increased supply.

We can also notice a subtle shift in emphasis in the policy statement towards employment goals (instead of routine discussion of inflation targets) which is reminiscent of the Fed’s shift toward flexible average inflation targeting policy.If it’s true, then the RBA may be willing to tolerate higher inflation as well in exchange for lower future unemployment. Of course, this development bodes ill for the national currency, AUD.

From the technical perspective the RBA’s dovish bias helped AUDUSD to complete formation of the double-top reversal pattern in the pullback that started on September 28, which in turn was part of the bearish trend initiated in September:

A breakthrough of the local minimum at 0.7130 should allow us to consider targets at 0.7080 and 0.70 levels.

The AUDUSD decline of more than 5% in September and the episode of "resistance" since September 28 were consistent with waves of correction and rally in equity markets, indicating a link between the events. Then a further decline in AUDUSD suggests a nix in the stock markets, which is very likely to happen due to upcoming pre-election volatility. Earlier, retail brokers in the US (such as IB) announced an increase in initial and maintenance margins for some instruments, mentioning the risks of "elevated volatility" ahead of the elections.

The trade balance of Australia in August was almost half of the forecast (2.64 billion against 5.15 billion Australian dollars), which indicates a reduction in exports. Business activity in Australia is especially sensitive to the dynamics of foreign trade, therefore, the weakening of exports is an additional blow to Australian assets and hence the demand for AUD.

Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.

High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 72% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.