The forward guidance in a recent speech by Governor Lowe (https://www.rba.gov.au/speeches/2020/sp-gov-2020-10-15.html) to suggest the policy rate would not be raised until actual inflation “sustainably” returns to the target range and to explicitly state this is not expected to happen for at least three years is a welcome development. The immediate drop in the exchange rate following the speech suggests that it represents a material increase in public expectations about how long the RBA is expected to keep the policy rate low. This shows the power of forward guidance and the importance of specifics when conducting forward guidance.
The apparent recovery in economic activity in China is good news for the Australian economy, even given political tensions that are putting some trade between the two countries at risk. But, despite a somewhat more positive outlook for the economy, it makes sense for the RBA to continue to signal that a highly accommodative stance and focus on keeping inflation expectations from falling.