AUD: The aggressive monetary easing is a double-edged sword for the aussie – Wells Fargo

The Reserve Bank of Australia kept rates unchanged after Tuesday’s meeting. The central bank doubled the size of its purchase program. According to analysts at Wells Fargo, the monetary policy announcement was notably more dovish than expected in the areas of quantitative easing, interest rate guidance and the exchange rate.

Key Quotes: 

“Today’s relatively aggressive easing and dovish accompanying statement is, in our view, a bit of a double-edged sword for the Australian dollar. On the one hand, the pledge of additional liquidity and the fact that interest rates will remain low for longer should be a significant negative for the Australian currency. However, to the extent that accommodative monetary policy supports the economic growth outlook, that might help to limit the extent of currency downside.”

“We see only modest downside risk to our current Australian dollar outlook from today’s monetary policy announcement. Indeed, we note the Australian dollar is down only around 0.5% versus the greenback today, although we suspect favorable global market sentiment is also helping to limit the extent of today’s Australian dollar weakness.”