AUD/USD and NZD/USD Fundamental Daily Forecast – RBA Optimistic, but Sees Unemployment as ‘National Priority’

After making several well-timed moves during 2020 that helped stabilize the economy after the COVID-19 pandemic crushed production and employment, the Reserve Bank of Australia (RBA) seems pleased with the results so far from its aggressive rate cuts and policy decisions although it acknowledges several headwinds during the lengthy process of reaching a full recovery from the devastation.

Earlier in the month, Australia’s top central banker struck an optimistic note about the country’s economy but warned a recovery from the coronavirus pandemic would be bumpy and uneven, signaling the need for policy support from a long time to come.

Economic growth is expected to be “solidly positive” in both the September and December quarters, Reserve Bank of Australia (RBA) Governor Philip Lowe said at a recent appearance before a parliamentary economic committee.

“There is still a high degree of uncertainty about the outlook,” Lowe said.

“What has become clearer, though, as time has passed is that Australia is likely to experience a run of years with unemployment too high and wage increases and inflation too low, leaving us short our goals,” Lowe added.

“In the current environment, addressing the high rate of unemployment is a priority for the Reserve Bank Board. We are intent on doing what we can, with the tools we have, to help here,” he said, while reiterating that a policy of negative interest rates was extraordinarily unlikely.

Reserve Bank Says Unemployment Remains Priority

Two weeks after the RBA held its monetary policy meeting, central bankers released the minutes from the assembly.

Australia’s labor market is recovering faster than expected thanks to an easing in coronavirus restrictions and a rebound in consumer spending, but it will still take years of unemployment to fall to desired levels, says the country’s central bank.

Unemployment is a “national priority” for the Reserve Bank of Australia.

The board feared a protracted period of unemployment lay ahead and agreed “substantial” monetary and fiscal support would be needed to boost employment and said it would add more stimulus if needed.

Some Australians face a prolonged period of unemployment as a result of the COVID-19 pandemic, a Reserve Bank of Australia analysis has warned.

It said while the economic outlook is highly uncertain, it is likely that the unemployment rate will remain elevated for a number of years.

“As such, some unemployed people facing the prospect of a prolonged period of unemployment,” research in the central bank’s monthly bulletin said.

Short-Term Outlook

The Australian Dollar is up about 8.28% against the U.S. Dollar in 2020. Some of its strength should be credited to outstanding, well-timed moves by the RBA, some to the lost appeal of the dollar as a safe-haven asset and the sharp rise in demand for risk.

Heading into 2021, traders have to keep in mind that the recovery in the Australian economy is fragile and that a sharp rise in coronavirus cases could raise concerns over the speed of the economic recovery rather quickly.

Furthermore, the rise in the Aussie could eventually become an issue if it threatens the country’s exports. Finally, I don’t think the RBA is going to remain optimistic too long if the employment situation doesn’t improve quickly.

If the Aussie Dollar rises too high, too fast then look for the RBA to start talking it lower.

For a look at all of today’s economic events, check out our economic calendar.