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Australian Dollar Falls as RBA Extends Government Bond Purchases

Australian Dollar Falls as RBA Extends Government Bond Purchases

Thomas Westwater, Analyst

Australian Dollar, Reserve Bank of Australia, AUD/USD – Talking Points

  • Reserve Bank of Australia holds cash rate at 0.10% in latest policy decision, as expected
  • AUD/USD moves lower as RBA extends A$100 billion bond purchases
  • Policy to stay accommodative until substantial gains in inflation and wages are seen

The Reserve Bank of Australia (RBA) kept its cash rate on hold at 0.10% in its first policy rate decision of the year. This move was widely expected by economists and market participants despite strong employment and inflation data over the past few months. The Australian Dollar saw a strong lead-up to the rate announcement versus the Greenback, with AUD/USD climbing 0.50% in the minutes before the decision crossed the wires. However, Aussie-Dollar strength wavered after the rate decision as traders digested the news.

AUD/USD 1-Minute Chart

AUDUSD Chart

Chart created with TradingView

The RBA’s A$100 billion program of government bond purchases – which is now roughly halfway complete – received an extension. The current pace of QE is planned to continue once the initial deadline expires in April. The current pace of A$5 billion a week stands. The RBA introduced these measures back in November with the aim to bolster the private lending market. Australia’s housing market has benefited from the move, but investor and business credit growth remain weak, according to the RBA.

The central bank reiterated that inflation remains weak and below target. For 2021, core CPI is expected to be at 1.25%, and 1.50% for next year. While consumer prices have come in stronger-than-expected over the past few months, the RBA has made it clear that it will hold the cash rate until a sustainable lift within the 2-3% target is achieved.

AU CPI vs PPI

The policy statement also notes the recent pickup in the labor market and that the upbeat trend is expected to continue. The Australian unemployment rate fell to 6.6% from 6.8% in December while the participation rate increased. RBA policymakers are keeping a close eye on Covid-19 and the potential impact from delayed vaccination rollouts or other negative drivers surrounding the pandemic.

AU Jobs chart

AUD/USD TRADING RESOURCES

--- Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwateron Twitter

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

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