Australian Dollar, Reserve Bank of Australia, AUD/USD – Talking Points
- Reserve Bank of Australia holds cash rate at 0.10% in latest policy decision, as expected.
- AUD/USD moves lower as RBA adds second round of A$100 billion bond purchases
- Policy to stay accommodative until substantial gains in inflation and wages are seen
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The Reserve Bank of Australia (RBA) kept its cash rate on hold at 0.10% in its first policy rate decision of the year, a move widely expected by economists and market participants despite strong employment and inflation data over the past few months. The Australian Dollar saw a strong lead-up to the rate announcement versus the Greenback, with AUD/USD climbing 0.50% in the minutes before the decision crossed the wires. However, Aussie-Dollar strength wavered after the rate decision as traders digested the news.
AUD/USD 1-Minute Chart
Chart created with TradingView
The RBA’s A$100 billion round of bond purchases – which is now roughly halfway complete – received an extension, with an additional A$100 billion on deck once the initial round is completed in April. The current pace of A$5 billion a week stands. The RBA introduced the measure back in November with the aim to bolster the private lending market. Australia’s housing market has benefited from the move, but investor and business credit growth remain weak, according to the RBA policy decision statement.
According to the policy statement, inflation remains weak and below target. For 2021, inflation is expected to be at 1.25%, and 1.50% for next year. While inflation and consumer prices have come in stronger-than-expected over the past few months, the RBA makes clear that it will hold the cash rate until a sustainable lift within the 2-3% target is achieved.
The policy statement also notes the recent pickup in the labor market and that the upbeat trend is expected to continue. The Australian unemployment rate fell to 6.6% from 6.8% in December while the participation rate increased as the labor market picked up. RBA policy makers are keeping a close eye on Covid-19 and the potential impact from delayed vaccination rollouts or other negative drivers surrounding the pandemic.
AUD/USD TRADING RESOURCES
— Written by Thomas Westwater, Analyst for DailyFX.com
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