Reserve Bank of Australia Ends QE, Maintains Rates

  • AUDUSD
    (${instrument.percentChange}%)

RBA Decision

The Reserve Bank of Australia announced the end of its asset purchase program, with final purchases to take place on 10 February. The bank's balance sheet has more than tripled, to around A$640 billion, since the start of the pandemic.

In his statement, Governor Lowe acknowledged that inflation has picked up more quickly than the RBA had expected, but also noted that "it is too early to conclude that it is sustainably within the target band". [1]

The bank expects underlying inflation to increase further in coming quarters to around 3.25% per cent, from 2.6% currently.

Interest rates were maintained at 0.1% and the bank stressed that the conclusion of the bond buying program does not imply a near-term increase in interest rates, while reiterating that it "will not raise rates until actual inflation is sustainably within the 2% to 3% target range".

Overall, this was a dovish statement, as the central bank – once again – pushed back against calls for interest rate hikes.

Markets will now look to Wednesday's speech from RBA Governor Phillip Lowe for more commentary and the bank's Monetary Policy Statement on Friday for the economic forecasts. From today's economic calendar, focus will be on US PMIs (15:00 GMT).

AUD/USD Reaction

The pair reacted lower immediately after the news, since the bank pushed back against rate hikes, but then found support, trding mixed on the day.

The Aussie started the week on the offensive and covers today's initial losses, trying to surpass its EMA100 towards 0.7100. This would ease downside risk, but a bigger recovery beyond mid-0.7100s may prove hard.

On the other hand, the pair comes from a poor week and a negative month and as such, it is vulnerable to renewed pressures towards the 0.7000 area, but it may be early for fresh 2022 lows (0.6966).

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 04 Oct 2022 https://www.rba.gov.au/media-releases/2022/mr-22-02.html

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