Forex Market: AUD/USD eases, 10-year Australian bond yields drop as RBA extends bond-purchasing program

AUD/USD eased on Tuesday, but remained supported just above the 0.7600 mark, after the Reserve Bank of Australia surprised markets by extending its bond-purchasing program and also stressed on its commitment to keep interest rates on hold until at least 2024.

The RBA left its benchmark cash rate intact at a record low level of 0.10% at its policy meeting earlier on Tuesday, in line with market expectations, but the board said bond purchases would be extended by another AUD 100 billion. The central bank’s current program is scheduled to end in April, while analysts had expected the RBA would wait a bit longer before deciding whether to extend it.

The yield on 10-year Australian government bonds eased from a 10-month high of 1.19% on Tuesday.

“On a number of levels, the RBA policy statement was a dovish surprise for FX markets,” Robert Rennie, head of financial market strategy at Westpac Banking Corp, was quoted as saying by Reuters.

“We see some further underperformance in the A$ near term, to at least a test of the $0.7600 level. But weakness back towards the midpoint of our short term fair value model – $0.7550 and below – is an opportunity to buy as the A$ will gain sharply through the second half,” Rennie added.

The RBA also said it now expected Australia’s GDP to increase 3.5% during both this year and 2022, while the rate of unemployment to drop. The jobless rate is forecast to be around 6% at the end of 2021 and 5.5% at the end of next year.

RBA Governor Philip Lowe is expected to speak on the macroeconomic outlook tomorrow.

As of 10:04 GMT on Tuesday AUD/USD was inching up 0.02% to trade at 0.7620, after earlier touching an intraday low of 0.7603, or its weakest level since January 28th (0.7592). The major pair retreated 0.81% in January, which marked its third loss in the past ten months.

Bond Yield Spread

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled -0.4 basis points (-0.004%) as of 9:15 GMT on Tuesday, or unchanged compared to February 1st.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7629
R1 – 0.7652
R2 – 0.7686
R3 – 0.7709
R4 – 0.7733

S1 – 0.7595
S2 – 0.7572
S3 – 0.7539
S4 – 0.7505