RBA instant reaction and what comes next for the AUDUSD

After implementing a series of five easing measures at its board meeting in November last year, the RBA has today taken another step towards normalising its emergency monetary policy settings.

Australia

While the RBA kept its target of 10 basis points for the cash rate and confirmed it will continue to purchase government bonds at a rate of $4 billion per week, it put an end to its "yield curve control" (YCC) policy aimed at keeping the April 2024 government bond yield at 0.1%.

“The decision to discontinue the yield target reflects the improvement in the economy and the earlier-than-expected progress towards the inflation target.”

The RBA noted inflation has picked up, but in underlying terms, inflation remains low and is expected to increase only modestly from the current rate of 2.1%. (This doesn’t provide a lot of breathing room as the reopening from recent lockdowns gain traction.

“The central forecast is for underlying inflation of around 2¼ per cent over 2021 and 2022 and 2½ per cent over 2023.” 

The RBA remains focused on wage-price inflation as noted in the last paragraph:

"The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. This will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently. This is likely to take some time. The Board is prepared to be patient, with the central forecast being for underlying inflation to be no higher than 2½ per cent at the end of 2023 and for only a gradual increase in wages growth."

The inclusion of the words “some time” replaces the RBA’s previous forward guidance “not before 2024” as to the timing of rate hikes. 

Reflecting the dovish tones and some uncertainty around the somewhat vague guidance, the AUDUSD  has fallen modestly from .7520 to around .7500c.

Technically we retain a mild bearish bias in the AUDUSD leaning against resistance .7550/60c (wave equality and the 200-day ma), although needing a break below support .7470/50 to confirm the bearish bias and that a deeper decline is underway.

AUDUSD daily chart 2nd of November

 

Source Tradingview. The figures stated are correct as of November 2nd, 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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