No Change in December

The Australian Dollar has stalled just under the 2020 highs in response to the latest RBA rate decision, delivered overnight. The bank, headed by governor Lowe, held rates unchanged, as was broadly expected following the rate cut delivered in November. While no policy adjustment was announced, however, the tone of the meeting was decidedly dovish.

Governor Lowe reassured markets that rates were unlikely to be increased for at least 3 years “given the outlook” and said that the economy will need to experience “significant gains” in employment and wages in order to return CPI to its target 2% - 3% level. Commenting on the bank’s bond purchases program, Lowe said: “The board will keep the size of the bond purchase program under review, particularly in light of the evolving outlook for jobs and inflation. The board is prepared to do more if necessary.”

Further Stimulus Announced Last Month

Last month, the RBA announced a further round of stimulus which included a reduction in the cash rate, three-year yield target and the bank lending rate to 0.10%, along with another AUD 100 billion in bond-buying over the next six months. The stimulus was announced to coincide with the reopening of Victoria following a further lockdown there as well as the new government budget announced in October. On this, Lowe said: “These decisions are complementary to the significant steps taken by Australian governments to support jobs and economic growth.”

Commenting on the current situation, Lowe said: “The board views addressing the high rate of unemployment as an important national priority.” Currently, the bank still projects unemployment to fall to around 6% by the end of 2022 from the current 7% level.

Mixed News Globally

In terms of the broader context, Lowe struck a moderate tone on recent global developments, saying: “Globally, the news has been mixed recently… the positive news on vaccines has boosted equity markets, lowered risk premiums and supported further increases in some commodity prices.”

While no further RBA easing is projected in the near term, a great deal of the outlook now hinges on the progress seen within the vaccine space. If the drugs are rolled out efficiently and prove to be effective, this should further boost risk appetite, helping AUD recover further.

Technical Views

AUDUSD

Following the breakout above the corrective bear channel, AUDUSD is now trading higher within the longer term bullish channel once again. For now, price is stalled at the .7413. While price remains within the bullish channel, however, the near term outlook remains bullish with the .7656 level the next target for bulls.

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