AUD Lower Following RBA

The AUD is trading lower across the early European session on Tuesday following an unchanged decision from the RBA overnight. At its March monetary policy meeting, the central bank opted to hold interest rates and purchases at current levels. There had been a great deal of speculation ahead of the meeting given the adjustments in bond purchases made by the bank in the lead up to it.

Bond Purchases Brought Forward

The RBA said it had “brought forward” some of its bond purchases this week. The bank doubled the size of its purchases from 2 billion AUD to 4 billion AUD in a bid to address the recent rise in yields. On the back of this move, which was unusual in that it was announced away from a policy meeting, the market was on watch for further easing. Commenting on the action, RBA governor Lowe said: “Bond purchases under the bond purchase program were brought forward this week to assist with the smooth functioning of the market” and advised that “The bank is prepared to make further adjustments to its purchases in response to market conditions.”

No Changes Made

Despite the adjustments in the run up to the meeting, however, the central bank announced no further measures. Interest rates remain at record lows of 0.1% with the yield curve target for the three-year government bond held at that level also. The RBA has now used up 74 billion AUD of the 100 billion AUD it initially outlined for bond purchases in response to the pandemic last year. The program was doubled in size in February this year in a bid to help further recovery as the country attempts to move past the pandemic.

Rates on Hold Until 2024

Looking ahead, Lowe said the RBA remains “committed to maintaining highly supportive monetary conditions until its goals are achieved” and reaffirmed the bank’s message that it will be keeping rates at current levels until inflation (real, not forecast) was “sustainably” in its 2% - 3% target band. Looking ahead, the RBA says it “does not expect these conditions to be met until 2024 at the earliest”. However, as with the US, the rise in yields is in a key issue currently, especially with the bank noting that AUD “remains in the upper end of the range of recent years”. Should yields continue to rise, and AUD with them, further action from the RBA is likely.

Technical Views

AUDUSD

The sell off in AUDUSD from the .80 level has seen price breaking down back to the rising trend line from 2020 lows. For now, the trend line is holding as support, keeping the current bull trend intact. However, price action remains heavy and the market is vulnerable to a dip lower. Should we see a break below the .7656 level, .7411 is the next big support thereafter.

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