ASX200 soars on prospects of QE3 following RBA minutes

Following the Queen’s Birthday public holiday yesterday, local equity traders have returned to a holiday-shortened week, encouraged by the content of the RBA meeting minutes released this morning.

Australia

While acknowledging “the economic recovery in Australia was stronger than expected” the minutes reaffirmed the Board will not raise rates until actual inflation is sustainably within the 2 to 3 per cent target rate and its targets for employment are achieved. Conditions unlikely to be met until 2024 at the earliest.

The minutes confirmed that the RBA’s upcoming July meeting will answer two key questions around whether;

1. The RBA will retain the April 2024 bond as the target bond for their 3-year yield target of 0.1% or extend it to the next maturity, the November 2024 bond.

2. Decide upon future government bond purchases (QE3) ahead of the completion of the second $100bn of purchases in early September (QE2) and outlined four possible scenarios.

*Ceasing purchasing bonds in September (other than to support the yield target if necessary).

*Repeating $100 billion of purchases for another 6 months.

*Scaling back the amount purchased or spreading the purchases over a longer period.

*Moving to an approach where the pace of the bond purchases is reviewed more frequently, based on the flow of data and the economic outlook.

Based on the four options above an extension of the QE program seems certain in some shape or form. It appears less certain the 0.1% 3-year bond target will be extended, and this is reflected in current market pricing.

Attention now turns to RBA Governor Philip Lowe's speech on Thursday at 10.30 am titled “From Recovery to Expansion” followed shortly after by the jobs report for May for clues on the future direction of RBA monetary policy.

Supported by the prospect of QE3 and playing catch up to offshore equity markets, the ASX200 has soared to fresh all-time highs today to be trading at 7387.40, +75.1pts or +1.03%, at the time of writing.

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Providing the ASX200 holds above the support from last week’s lows near 7260, the ASX200 looks set to test the key psychological 7500 resistance area in coming weeks. Aware that a break and a daily close below 7260 would be the first indication that a correction towards 7100 is underway.

ASX200 soars on prospects of QE3 following RBA minutes

Source Tradingview. The figures stated areas of the 15th of June 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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