RBA just hinted at likely rate cut in June

A further pickup in net-long interest may continue to offer a contrarian view as AUD/USD struggles to retain the rebound from the 2019-low (0.6745), but recent price action also appears to be spurring a rise in in net-short interest as Aussie Dollar gaps higher following the election.

"We read this discussion as the board requiring the unemployment rate to fall to stay on hold, but the latest data shows the unemployment rate has trended up".

The Australian Reserve Bank signaled that is aiming for a rate cut. That was after a rate cut in May of the same year. Futures imply a 93 per cent probability of a cut next month, and are fully priced for 1 per cent by November. The US Federal Reserve halted its monetary tightenings in February, while countries from New Zealand to India and Malaysia have cut rates to support their economies.

If expectations of a second rate cut start to gather momentum in the market the Aussie dollar's woes are far from over and we are likely to see further losses for a currency which was once the darling for investors seeking a higher yield.

However, our current assessment is that with the housing market stabilising in 2020 and the RBA uncertain about the impact of sub 1% cash rate on the economy the eventual low point in the cycle will prove to be 1%.

Signs are domestic activity likely slowed in the three-months ended March to an annual 1.7 per cent, the weakest since the 2008 global financial crisis. Still, Lowe said it was possible that current policy settings were sufficient to deliver lower unemployment.

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RBA Governor Philip Lowe all but said as much in a speech on Tuesday, prompting all four of Australia's major banks to tip a June move.

Australia's prudential regulator on Tuesday proposed lowering stress-test limits for mortgages.

Cutting borrowing costs is one way to encourage the faster economic growth that is necessary for the unemployment rate to come down further, which is seen as a prerequisite for the kind of wage growth and inflation that would lift the consumer price index into the 2%-to-3% target band.

He pointed to subdued household consumption as the biggest reason behind the broader economic downturn, suggesting tax breaks might bolster household incomes. He said that the RBA has this year been reassessing what level of unemployment is compatible with the inflation target, and evidence had been mounting that it was below 5%.

"By definition, Australian minerals exporters are very happy" and the Australian government's tax take will also be rising, he says. But Prime Minister Scott Morrison might not meet a June deadline, clouding the exact timing when households will receive the full rebate.

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