AUD Weaker Following RBA
The Australian Dollar has come under selling pressure over the European morning on Tuesday following the latest RBA meeting. The Reserve Bank of Australia held its headline policy rates unchanged today, in line with expectations, with the bank holding rates at record lows of 0.10% and maintaining its current bond yield target of 0.10%.
Rates & Yield Curve Target Maintained
In terms of the statement given alongside the decision, the RBA maintained broadly the same message that it gave in March, citing optimism over the progress seen within the vaccination effort, while citing the remaining uncertainty and downside risks in its outlook. Importantly, there was no shift in the bank’s yield curve targeting at this stage, reflecting that the bank is still fighting against rising bond yields. However, there were some developments to note with the RBA advising that later in the year it will consider whether to make a shift from the April 24 bond maturity used in its yield curve control program or shift to the next maturity.
Economic Recovery In Good Health
Speaking on the health of the economy, the bank noted that the recovery is well under way and is in fact progressing ahead of expectations. However, wages and price pressure remain subdued and look likely to continue to remain so for some years, keeping inflation below the bank’s 2% target. The bank once again reiterated that it does not see these conditions being met until at least 2024 when it would expect to raise rates.
In all, the meeting was a fairly subdued event with the bank offering little in the way of new information since last time around. While the domestic and global vaccination programs continue to gather pace, however, there are plenty of upside risks for AUD which tends to track global risk appetite.
Yields & Aussie Lower Following Meeting
In response to the meeting, we’ve seen Australian yields coming off with the 10 year yield sitting around 1.70 as of writing, correcting lower from the recent highs around 1.80. However, with current pullback only representing a shallow move within the rally which has been running since August last year, the outlook is still firmly bullish for Aussie yields.
The breakdown below the rising trend line from last year’s lows has been accompanied by the formation of a head and shoulder pattern. These two elements together suggest the market is vulnerable to a deeper correction lower. Price is currently sitting on the .7563 level support, the neckline of the pattern. If broken, the next target for bears is the .7413 support. To the topside, bulls will need to see a break above .7814 to regain upside momentum.
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