Search ForexCrunch

The Reserve Bank of Australia (RBA) is expected to go all out with additional monetary policy easing this Tuesday, in an effort to turbo-charge the recovery from its coronavirus pandemic induced first recession in nearly three decades. AUD/USD’s fate hinges on the extent of QE expansion and USD dynamics, FXStreet’s Dhwani Mehta briefs.

See – Reserve Bank of Australia Preview: Forecast from six major banks

Key quotes

“The RBA is likely to lower the Official Cash Rate (OCR) by 15bps to a new record low of 0.10% from the current 0.25%. The board members are also seen cutting their target for the yield on three-year government bonds to the same level.  An expansion of AUD100 billion to its government bond-buying program, quantitative easing (QE), is also due on the cards.

“Heading into the RBA decision, the key focus for markets is the US election and the uncertainty surrounding the outcome, which lifts the haven demand for the US dollar while weighing on the risk assets such as the aussie. Meanwhile, surging coronavirus cases in Europe and the US also dampens the market mood.”

“It’s worth noting that RBA’s additional easing is already priced-in by the markets, reflective of the recent tumble in AUD/USD from near 0.7200 to sub-0.7000 levels. The price has breached the key ascending trendline support on the daily chart and therefore, a QE expansion of above AUD100 billion could further boost the AUD sellers, opening floors for a test of the 0.6900 level.”

“A run towards the critical resistance around 0.7080 cannot be ruled out on a smaller QE announcement and/or if the risk tone improves and drags the greenback southwards.”