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The Reserve Bank of Australia (RBA) Board decided at its September meeting to extend the Term Funding Facility (TFF) and asserted that it continues to consider further monetary policy measures. The RBA also noted a depreciation in the USD along with higher commodity prices had seen the AUD lift to two-year highs. Economists at Westpac forecast the aussie rising to 0.75 but see more risks of a correction past September.

Key quotes

“We went into today’s policy statement not expecting to see too much change in the overall tone of the statement from an FX perspective, so at face value the A$57bn increase in size and extension of tenor of the TFF plus the shift in the last paragraph to note that the Board ‘continues to consider how further monetary measures could support the recovery’ highlights this is more dovish than we expected.”

“The RBA also noted that the A$ is ‘around its highest level in nearly two years’, its first comment on the A$ since March 3, though it did note that the ‘US dollar has depreciated against most currencies over recent months’ and we have higher commodity prices as drivers.”

“We tend to see these two factors continuing in the near-term, with the Fed’s recent policy tweak to ‘flexible average inflation targeting’ which will be formalised Sep 15/16 and China’s currently almost insatiable demand for iron ore as key drivers.”

“Thus a AUD/USD push up towards 0.75 through September still looks likely to us, but beyond that, we see heightened risks of a correction as markets start pricing in US election risks.”


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