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The Reserve Bank of Australia’s latest policy announcement, maintaining its current policy settings, was widely expected. Economists at HSBC think the RBA’s statement contained both hawkish and dovish elements, albeit digested by FX markets. Despite the near-term volatility, they believe the global growth recovery should remain supportive for the AUD this year.

See:  AUD/USD  to reach the 0.80 mark by end-Q2 – CIBC

The near-term focus remains higher US Treasury yield volatility

“The post-meeting statement by the RBA’s Governor Philip Lowe contained both hawkish and dovish elements, but there was nothing really new for FX markets to digest. The central bank noted that the recovery, which is ‘well underway’, is also ‘stronger than had been expected’. But it is clear that the RBA is happy to be patient, repeating its view that it will be ‘2024 at the earliest’ before the cash rate might need to be raised in response. The RBA also did not seem worried by the pick-up in the housing market.”

“The AUD movements are still driven by ‘Risk On-Risk Off’ (RORO) dynamics rather than local factors. We are conscious of rising US Treasury yield volatility over the near-term, as higher US yields may dent risk appetite and spur bouts of USD strength.”

“We still believe the global growth recovery remains supportive for the AUD this year. The currency’s correlation to broad commodity indices has picked up to at least a five-year high and rising terms of trade saw the current account surplus balloon out to 2.6% of GDP in 2020. This strong tailwind should persist in the coming months, particularly as Australia’s export commodity prices have risen a further 11.8% in the first quarter this year.”

 

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