RBA instant reaction and what comes next for the AUDUSD
Tony Sycamore November 2, 2021 12:28 PM
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.
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.
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
How to trade with City Index
You can trade easily trade with City Index by using these four easy steps:
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.