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The Reserve Bank of Australia (RBA) policy statement was a dovish surprise for FX markets. The decision to announce an extra AUD100 B of QE, rather than waiting until the March meeting was more dovish than most thought. The aussie has given some ground from the 0.7662 level prevailing just ahead of the announcement, and economists at Westpac expect to see some further underperformance near-term.

Key quotes

“The Reserve Bank Board decided to extend the current bond purchase program by a further $100 billion. The purchases in the second tranche will begin in mid- April when the current program is set to be completed (that completion date could be as early as April 9).”

“Growth is expected at 3.5% in both 2021 and 2022. That compares with 5% and 4% respectively in the November Statement on Monetary Policy which contained the last set of forecasts.”

“The statement that ‘The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range … This will require significant gains in employment and a return to a tight labour market. The Board does not expect these conditions to be met until 2024 at the earliest’ was also a much more explicit commitment to maintain super low interest rates well into the future too.”

“With today’s dovish outcome plus continued weakness across the metals complex – especially iron ore; weaker China activity data and the recent jump in the China repo rate, we see some further underperformance in the AUD/USD pair near term – at least a test of the 0.7600 level should be seen near-term.”