The emergence of the coronavirus (COVID-19) in Australia has given rise to expectations that the Reserve Bank of Australia may extend its easy money policy (RBA). “Australia’s central bank is likely to gently pull in some of its emergency stimulus to reflect the economy’s impressive recovery,” Bloomberg said, “even with nearly half of the country back under lockdown owing to an outbreak of the delta strain of Covid-19.”
“At Tuesday’s meeting, the Reserve Bank is expected to rule against rolling over its three-year yield objective from the current April 2024 bond to the November 2024 bond, an extension that would imply interest rates won’t go up until 2025,” Bloomberg notes.
“Clearly, the current Covid scenario will be front-and-center of debate,” says Su-Lin Ong, head of Royal Bank of Canada’s Australian economic and fixed-income strategy. “This will likely see the RBA provide a comforting message that errs on the dovish side, even as it opts to not roll the target bond to the Nov-24s and implies some taper in a QE3 program,” the analyst added.
Despite solid job numbers at home, RBA Governor Philip Lowe is set to wait for the US Federal Reserve’s (Fed) move, according to Bloomberg. He is also likely to prefer sticking behind RBNZ and BOC actions.
It should be noted, however, that the AUD/USD prices appear bullish, according to Matthew Peter, chief economist at QIC Ltd “The RBA can’t roll over the three-year yield target without inverting the short end of the yield curve, as the economy’s recovery has pushed the expected timing of the first RBA rate hike forward. The RBA will extend its QE program to provide insurance against an extreme steepening of the yield curve, with the Australian dollar headed towards $0.80 and large issuance of government debt.”
Read more about AUD/USD will profit from commodities short covering and a weaker US dollar./n
