AUD/USD set to strengthen as RBA makes room for adjustment – MUFG

The Australian dollar has strengthened following the RBA’s latest policy update. It has helped to lift the AUD/USD pair back towards the 200-day moving average at 0.7575. Economists at MUFG expect the aussie to see a mild boost following the Reserve Bank of Australia statement.

Stronger AUD encouraged by RBA QE taper plans

“The RBA announced that they will begin to gradually taper their QE programme from September. The RBA noted that they were responding to the stronger-than-expected economic recovery and improved outlook by adjusting the weekly amount purchased.” 

“The RBA will conduct a further review in November, allowing the Board to respond to the state of the economy at that time. The QE taper announcement was more hawkish than expected given the RBA has made the pace of future purchases more flexible and dependent on the ongoing state of the economy.”

“However, the hawkish QE policy update has been partially offset by the RBA’s dovish decision to maintain their commitment to leave the key policy rate on hold until 2024. The RBA stated that it will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. The commitment should continue to put a dampener on short-term yields in Australia alongside the RBA’s yield curve control. In line with the RBA’s recent guidance, the April 2024 bond for the yield target of 0.10% was retained.” 

“Overall, the developments will encourage a stronger Australian dollar in the near-term. It already appeared undervalued relative to short-term fundamental drivers including yield spreads.”