Forex Market: AUD/USD retreats a second day as RBA sticks with bond tapering plans, but extends program to February 2022

AUD/USD extended losses on Tuesday after the Reserve Bank of Australia cut its bond-purchasing program by AUD 1 billion per week to AUD 4 billion per week and also extended the program to at least mid-February 2022.

Many analysts had expected the RBA to delay bond tapering, since lockdown restrictions in major cities will probably lead to a considerable GDP contraction during the current quarter.

At the same time, the RBA official cash rate was kept intact at a record low level of 0.10% during the bank’s policy meeting earlier on Tuesday, in line with market expectations.

“The Aussie went up because the RBA tapered, and only about half of economists expected that. The reason it then went down is because the RBA will buy at a rate of 4 billion a week for longer,” Joseph Capurso, head of international economics at Commonwealth Bank of Australia, was quoted as saying by Reuters.

“People thought they’d buy at 4 billion until November, but they told us they’re going to be buying at 4 billion until February.”

The central bank also said it expected a substantial drop in the country’s GDP in Q3 and a surge in the unemployment rate in the upcoming months. Still, as the vaccination campaign progresses and restrictive measures are relaxed, Australia’s economy should rebound, the RBA said.

Meanwhile, the yield on Australian 10-year government bonds was little changed at 1.268%, while the yield on 3-year government bonds was steady at 0.294%.

As of 8:38 GMT on Tuesday AUD/USD was edging down 0.38% to trade at 0.7411, while moving within a daily range of 0.7404-0.7469. Last week the pair went up as high as 0.7478, which has been its strongest level since July 15th (0.7487). The major currency pair has risen 1.29% so far in September, following a 0.39% loss in August.

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 -18.52 basis points (-0.1852%) as of 8:15 GMT on Tuesday, up from -18.8 basis points on September 6th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7441
R1 – 0.7455
R2 – 0.7470
R3 – 0.7485
R4 – 0.7499

S1 – 0.7425
S2 – 0.7411
S3 – 0.7396
S4 – 0.7381