Forex Market: AUD/USD falls as RBA maintains accommodative policy stance, continues bond purchases

AUD/USD retreated on Tuesday after the Reserve Bank of Australia (RBA) once again pledged to continue bond purchases and reassured that accelerated growth would not lead to an early policy tightening.

The RBA also left its official cash rate without change at a record low level of 0.10% at its policy meeting on Tuesday, in line with expectations.

“The current monetary policy settings are continuing to help the economy by keeping financing costs very low, contributing to a lower exchange rate than otherwise, and supporting the supply of credit and household and business balance sheets,” the central bank said in its policy statement.

“[It] remains committed to maintaining highly supportive monetary conditions until its goals are achieved…(and) will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.”

The RBA said it now expected Australia’s GDP to increase by 3.5% during both 2021 and 2022, while the rate of unemployment in the country to drop to 6% at the end of 2021 and to 5.5% at the end of 2022.

The aggressive bond sell-off at the end of last week sent the yield on Australian 10-year government bonds as high as 1.97% and 3-year bond yields up to 0.188% (well above the RBA’s target of 0.10%), which led to a swift response from the bank. The RBA bought AUD 3 billion in bonds on Friday and additional AUD 7 billion on Monday.

“The Bank remains committed to the 3-year yield target and recently purchased bonds to support the target and will continue to do so as necessary,” RBA Governor Philip Lowe said.

As of 9:51 GMT on Tuesday AUD/USD was edging down 0.18% to trade at 0.7756, while moving within a daily range of 0.7736-0.7775. Last Friday the major pair slipped as low as 0.7692, or its weakest level since February 8th (0.7651). The currency pair rose 0.88% in February, which marked its third gain in the past four 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 -1.5 basis points (-0.015%) as of 9:15 GMT on Tuesday, down from 1.3 basis points on March 1st.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7755
R1 – 0.7803
R2 – 0.7835
R3 – 0.7883
R4 – 0.7931

S1 – 0.7722
S2 – 0.7674
S3 – 0.7642
S4 – 0.7610