Australian Dollar Gets Robust Confidence Boost from RBA

The Reserve Bank of Australia (RBA) has announced that its board members made an official decision to maintain the official cash rate at a record low during the monetary policy meeting for June this year.

Australia and China 

Australia, which has been the subject of strict government-imposed lockdowns for over a year, has had a tumultuous few months regarding negotiations with its largest trade partner, the People’s Republic of China. Australia has been under the microscope of analysts and investors globally during a period of unprecedented change.

The strength and high level of organization which underpins the Australian economy has been demonstrated as the country retains its position as a highly stable economy despite the lockdowns and China having “indefinitely” suspended all activity under a China-Australia Strategic Economic Dialogue four weeks ago.

RBA Rates & Bond Purchase Programme 

The RBA’s decision to keep its target of 10 basis points on a three-year Australian government bond unaltered along with its continuation of the framework for the government bond purchase programme has been a welcome move with the RBA adding that it will not increase the cash rate until actual inflation is sustainably within the 2% to 3% target range.

Market Impact

The AUD/USD currency pair eased slightly on the expected RBA decision, and the spot FX rate had risen to 0.7752, which represents a rise of 0.20%.

Whilst spot FX remained high, and the Australian Dollar increased slightly against the US Dollar, stock markets were affected in the adverse direction following the RBA meeting.

According to the latest SPI futures, reports at the beginning of the day expected the ASX 200 open 43 points lower, amounting to 0.46% despite the US and UK markets having been closed for public holidays during the early hours of the Australian trading day.

Final Thoughts 

When looking more closely at the minutes from the previous RBA meeting which took place in May this year, it appears that a degree of consideration will be given to adjustments to the yield curve control and other quantitative easing policies at the July meeting as this did not appear as a subject in this month’s RBA meeting, a dynamic that the banks are fully aware of. NAB stated that “Any fireworks regarding the fate of YCC and QE don’t happen until July”.

Some analysts feel that the RBA is relatively nonchalant about the inflationary outlook of the economy and that the RBA has a bullish outlook on the AUD. Similarly, if the RBA has a dovish view on the Australian economy and keeps or cuts the current interest rate, it is seen as negative.

Overall, there is a steady outlook for Australia’s overall economy despite many geopolitical aspects internally and externally having dominated the news over the past year.

For these reasons, it is a case of business as usual for the AUD.

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