Reserve Bank of Australia Preview: Policy on hold, improved economic outlook

The Reserve Bank of Australia is having a monetary policy meeting and will announce the outcome early on Tuesday. The central bank is widely anticipated to maintain rates unchanged at a record low of 0.1%, with the market focusing on any possible twist to the economic outlook and/or future policies. Chances of changes there are also quite a few.

The central bank announced a $100 billion quantitative easing program in November, and roughly  $80 billion will be spent purchasing Australian Government bonds, while the other $20 billion will be spent purchasing state and territory government bonds.

Optimistic policymakers

Australian policymakers have for long said that the pandemic impact on the economy has been softer than initially anticipated, but this time, they could move one step forward, and provide markets with a more upbeat outlook, given Australia’s privileged situation. Worth noting that is not the time to talk about unwinding facilities. Instead, policymakers may reiterate that they remain opened to add stimulus if necessary, should the situation worsen.

Meanwhile, the Australian dollar reached a multi-year high against the greenback early in January, as the latter suffered from political-uncertainty and a boosted sentiment. The greenback, however, is fighting back as the mood is suffering a setback. A  new US stimulus program that is far from done, delayed coronavirus vaccines distribution and turmoil in equities are behind the latest dollar’s advance.

AUD/USD possible scenarios

The AUD/USD pair is trading closer to the 0.7600 level ahead of the event, as the American currency continues to strengthen.  The RBA has little chances of hurting the aussie, yet the pair could accelerate its slump on a break below 0.7591, January’s monthly low. Next supports are located at 0.7550 and 0.7520.

The pair could resume its advance on a recovery above 0.7700, but bulls won’t regain control unless it surpasses the 0.7770 resistance area.