RBA reduces stimulus and boosts AUDUSD

As widely expected, at its monthly board meeting this afternoon the RBA kept monetary policy on hold, including its targets of 10 basis points for the cash rate and the yield on the 3-year Australian Government bond.

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The bank's forward guidance remained dovish. Specifically, the RBA reiterated that the conditions to raise interest rates including inflation sustainably between the 2 to 3% target rate and wages growth of 3% are unlikely to be met until 2024 at the earliest.

Reflecting the stronger than expected economic recovery the RBA took its first steps to reduce stimulus after the expiration of the bank's Term Funding Facility (TFF) on June 30 by not electing to extend its three-year “yield target bond” from the April 2024 bond to the November 2024 bond.

It also announced a more flexible approach to its latest QE program after the current program of $100bn is complete in September, reducing the pace of purchases to $4 billion a week from the current pace of purchases of $5 billion per week. It will reassess this decision in Mid-November.

Attention now turns to RBA Governor Lowes prepared remarks at 4.00 pm Sydney time that are expected to contain similar information to what was provided at the 2.30 pm meeting and details around which month, quantity, and bond yields the RBA will target under its new QE program.

What does it mean for the AUDUSD?

After a brief fall to .7544 after the announcement, the AUDUSD has rebounded to be testing the resistance coming from the 200 day moving average near .7570.

Should the AUDUSD break and post a couple of consecutive daily closes above .7570ish it would be an initial indication that a short-term low is in place at last week’s .7446 low and that the AUDUSD can rally towards .7700c.

RBA reduces stimulus and boosts AUDUSD

Source Tradingview. The figures stated areas of the 6th of July 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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