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Australian Dollar Flat After RBA Minutes Provide No Surprises

February 16, 2021 at 8:29 by Vladimir Vyun

General Sir John Monash on Australian 100-dollar billThe Australian dollar rose a bit at the start of Tuesday’s trading session but has retreated to trade near the opening level at the time of writing. The Aussie dropped versus the New Zealand dollar, which was the strongest currency on the Forex market today. The central bank’s minutes released on Tuesday did not provide any surprising new insights.

The Reserve Bank of Australia released minutes of its February 2 meeting, when the central bank decided to keep interest rates unchanged but to expand its asset-purchase program. The notes did not provide any significant surprises. The bank predicted that it will take years to achieve the inflation and unemployment goals, therefore significant monetary stimulus has to remain in place:

Members concluded that very significant monetary support would be required for some time, as it would be some years before the Bank’s goals for inflation and unemployment were achieved. Given this, it would be premature to consider withdrawing monetary stimulus.

The RBA defended its decision to expand the asset-purchase program, arguing that many central banks of other developed countries announced an extension of similar programs and failure of Australia’s central bank to do the same could have led to an undesirable appreciation of the Australian currency:

A number of central banks in other advanced economies had announced extensions of their bond purchase programs to at least the end of 2021, and there was a widespread expectation among market participants that the Bank’s program would be extended in some way. Given this, if the Bank were to cease bond purchases in April, it was likely that there would be unwelcome significant upward pressure on the exchange rate.

The minutes reiterated that negative interest rates remain extremely unlikely:

Members affirmed that the cash rate would be maintained at 10 basis points for as long as necessary. They continued to view a negative policy rate as extraordinarily unlikely.

At the same time, the RBA does not expect to consider raising interest rates anytime soon:

The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. For this to occur, wages growth will have to be materially higher than it is currently. This will require significant gains in employment and a return to a tight labour market. The Board does not expect these conditions to be met until 2024 at the earliest.

AUD/USD was up from 0.7780 to 0.7805 intraday but has backed off to trade at about the opening level by 8:28 GMT today. EUR/AUD traded at 1.5601 after opening at 1.5589 and falling to the daily low of 1.5559. At the same time, AUD/NZD plunged from 1.0763 to 1.0725.

If you have any questions, comments, or opinions regarding the Australian Dollar, feel free to post them using the commentary form below.

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