Markets are significantly recovering today after a strong US close the day before. The Canadian dollar has made a reversal, unsupported by oil prices. The Australian dollar is generally up today following the news of the RBA rate cut. However, the downside is relatively limited, save for a few.
The dollar became mixed, along with the yen and major European currencies. The Swiss franc appears to have continued its recent bullish momentum against the euro and has strengthened overall. In general, markets are indeed heterogeneous, with the focus on the outcome of the US elections.
As expected, at today’s meeting the RBA announced further easing of the monetary policy. The RBA cut its interest rate to 0.1% from 0.25% earlier. Likewise, the target for the yield on 3-year government bonds and the interest rate on new funds raised under the urgent financing facility was also reduced to 0.1%.
Meanwhile, the central bank also lowered the interest rate on settlement balances (the Australian equivalent of US interest rates on excess reserves) to 0. When buying assets, the RBA announced the purchase of AUS$100 billion in government bonds with maturities from 5 to 10 years old. Over the next 6 months, and then analyze the need for additional purchases “in light of the changing outlook for jobs and inflation”.
In terms of monetary policy outlooks, the central bank reiterated the directive that “the board does not expect a cash rate hike for at least three years.” Policymakers also suggested that the size of the quantitative easing program is under consideration and depends on the prospects for employment and inflation. They also pledged to “do more if needed.”
Since the RBA has ruled out negative interest rates, we expect it to do so through a rate cut this month. While policy rates at current levels will remain unchanged in the coming years, the central bank will focus on scaling up quantitative easing in case additional easing is needed in the future.
The Aussie is broadly trading higher following the RBA’s release of the rate cut, including against other commodity currencies. The rebound in AUD/CAD is one of the most obvious. The rebound from 0.9297 is slightly stronger than expected.
However, the cross is comfortably holding beyond the upward moving averages, which maintains short-term forecasts for the upsurge. The corrective fall from 0.9696 should resume sooner or later, as long as the 0.9433 resistance is held. A break of 0.9247 will target a 38.2% recovery from 0.8066 to 0.9696 at 0.9073.
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