The RBA’s forward guidance remained dovish as it reiterated that the conditions needed to raise interest rates (inflation sustainably between the 2 to 3% target rate and wages growth of 3%) are unlikely to be met until 2024 at the earliest.
Despite a sharp rise in new Covid cases that has seen Melbourne join Sydney in extended lockdowns until vaccination rates have reached higher levels, the RBA elected to taper assets purchases as planned from $5b/week to $4b/week, until at least Mid-February 2022.
Recent RBA communique had warned of this outcome. A note in the August minutes that fiscal rather than monetary support is more appropriate for this temporary shock and that additional QE would have maximum effect in 2022, with only a marginal impact at this time when additional support is required.
The RBA said today it would maintain its flexible approach to the rate of bond purchases, and the board will “continue to review the bond purchase program in light of economic conditions and the health situation.”
The AUDUSD initially rallied 25 pips after the announcement to .7468 before reversing lower, possibly some position squaring following its 5% rally over the past two weeks from the .7106 low.
Near term, the AUDUSD is potentially settling into a new higher trading range with sellers operating ahead of the 200 day moving average .7550/.7600 and dip buyers likely emerging ahead of the .7350/00 support region.