The Australian dollar has extended its rally on Thursday and is trading at 0.7554, its highest level since July 6th. It has gained 0.48% on the day.
Australian dollar rises as RBA balks on bond purchase
The RBA can take credit for boosting the Australian dollar today, although it was a non-move by the bank which shook up the markets. The central bank declined to purchase the April 2024 target bond, even though the yield was much higher than the bank’s target of 0.10%. The bond market responded by sending the yield up to 0.50%. This marked the first indication that the RBA had abandoned its yield target, which has fuelled market bets that the central bank will raise the cash rate ahead of its plan to raise rates only in 2024. The markets have priced in a rate hike much earlier than 2024, and today’s game of chicken by the bank has strengthened sentiment that the RBA will accelerate its forward guidance. The markets have now priced in a hike of 50 basis points by mid-2022 and 100 basis points by the end of 2022.
The RBA holds a policy meeting on November 2nd and it will be interesting to see what the bank does for an encore after today’s drama. Will policy makers acknowledge that the rates are unlikely to remain at 0.1% until 2024? Will the bank make any changes to its yield curve policy? Inflation is another area that the markets will be looking for some guidance at next week’s meeting. Headline CPI for Q3 dropped to 3.0% (YoY), down from 3.7% beforehand. However, Core CPI came in at 2.1%, up from 1.6%. This means that core inflation has crept back into the RBA’s 2-3% inflation band for the first time since 2015 and I would expect the RBA meeting to discuss this development.
- AUD/USD is testing resistance at 0.7550, which is followed by the 200-SMA at 0.7560. Above, there is resistance at 0.7624
- There are support levels at 0.7382 and 0.7297
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