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Australian Dollar 1Q 2021 Forecast Upbeat as RBA Rejects Negative OCR

Australian Dollar 1Q 2021 Forecast Upbeat as RBA Rejects Negative OCR

David Song, Strategist

The Australian Dollar has outperformed its US counterpart throughout the fourth quarter of 2020, with AUD/USD trading at its highest level since June 2018 as the Reserve Bank of Australia (RBA) continues to rule out a negative interest rate policy (NIRP).

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It seems as though the RBA will keep the official cash rate (OCR) at the record low of 0.10% at its next meeting on February 2 as Governor Philip Lowe and Co. insist that “we are still of the view that a negative policy interest rate in Australia is extraordinarily unlikely, with any benefits being outweighed by the costs.”

In turn, the RBA may continue to utilize its balance sheet to support the Australian economy after announcing plans to purchase “$100 billion of government bonds of maturities of around 5 to 10 years over the next six months” in November as “the Board will keep the size of the bond purchase program under review, particularly in light of the evolving outlook for jobs and inflation.”

Source: ASX

However, the ASX 30 Day interbank Cash Rate Futures February 2021 contract reflects speculation for another rate cut, with the market indicating a ‘65% expectation of an interest rate decrease to 0.00% at the next RBA Board meeting.’

With that said, it remains to be seen if Governor Lowe and Co. will deploy more unprecedented measures in 2021 as the “Board is prepared to do more if necessary,” but key market trends may continue to sway AUD/USD ahead of the next RBA meeting on February 2 as the central bank acknowledges that “the improvement in risk sentiment has also been associated with a depreciation of the US dollar and an appreciation of the Australian dollar.”

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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