AUD On The Backfoot Following RBA

The Australian Dollar has seen choppy, two-way flows on the back of the October RBA meeting overnight. The central bank held its headline policy rates unchanged, as expected, citing its commitment to achieving its employment and inflation targets before tightening. The meeting was fairly uneventful, given the lack of new information. However, it is worth noting that the bank is showing a decidedly less hawkish tone than just a few months prior. The RBA had been tipped to embark upon the tightening route ahead of the summer. However, resurgent COVID cases there led to fresh lockdowns which appear to have hindered the RBA and delayed its anticipated policy normalisation.

Rates on Hold Until 2024

In terms of forward guidance, the RBA reiterated that it will continue with its program of $AUD 4 billion in weekly asset purchases until at least February 2022. Additionally, the RBA noted that It will not be raising its headline policy rate until it has sustainably achieved its inflation target of 2 – 3% which it still feels will not happen until mid 2024.

Key quotes from the meeting statement:

  • The Delta outbreak has interrupted the recovery of the Australian economy and GDP is expected to have declined materially in the September quarter.
  • This setback to the economic expansion in Australia is expected to be only temporary. As vaccination rates increase further and restrictions are eased, the economy is expected to bounce back.
  • There is, however, uncertainty about the timing and pace of the bounce-back and it is likely to be slower than that earlier in the year.
  • In our central scenario, the economy will be growing again in the December quarter and is expected to be back around its pre-Delta path in the second half of next year.

Summary

The read here is that the latest lockdowns have essentially set the Australian economy back and the RBA is monitoring the situation to see when the recovery is kicking in. With that in mind, near term AUD prospects look limited to the upside with the currency likely to remain under pressure until we start to see a significant uptick in data.

Technical Views

AUDUSD

Following the breakout above the bear channel, price has since reversed and traded lower. However, for now, the market appears to be carving out a double bottom base against the .7112 level, suggesting room for a reversal higher in the near term. Indicators are turning higher here also. Keep an eye on the .7413 level resistance, a break of which will likely signal the start of a reversal.