Australian Dollar Up as the RBA Scales Down QE, Talks Up Recovery

RBA, MONETARY POLICY, AUSTRALIAN DOLLAR, AUD/USD - TALKING POINTS:

• Australian Dollar up after RBA scales down weekly QE asset purchases
• Recovery seen as stronger than expected, latest viral outbreaks a key risk
• April 2024 bond kept in place as the yield curve control program target

The Australian Dollar initially fell but ultimately found its way higher in the wake of the RBA monetary policy announcement. The central bank kept targets for the benchmark Cash Rate as well as the three-year bond yield unchanged at 0.1 percent, as broadly expected.

Policymakers maintained that conditions for an interest rate hike are unlikely to be met until 2024 at the earliest, a now-familiar refrain. However, the RBA held off from adjusting the 3-year yield cap further out from the April 2024 bond. That may have been mildly less dovish than what traders expected.

The central bank also updated its QE asset purchase program. It now plans to buy A$4 billion in bonds per week until mid-November, which it will review the effort anew. This marks a slowdown from the A$5 billion in weekly uptake ahead of today’s announcement.

Purchases will be comprised of 80 percent Australian government bonds and 20 percent semi-government securities. The new setup marks a transition to somewhat more open-ended QE than the previous arrangement, which defined final caps on asset buying within the program’s remit.

The central bank said it will buy bonds “as needed” to make sure the 3-year yield target is maintained. It added that the economic recovery has been “stronger than earlier expected” but flagged near-term uncertainly linked to “the recent virus outbreaks and [resulting] lockdowns”.

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--- Written by Ilya Spivak, Head Strategist, APAC for DailyFX

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter