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Australian Dollar Eases As RBA Retains Rate; Extends QE Program

australiandollar may07 02feb21 lt

The Australian dollar pulled back from its early highs against its major opponents in the Asian session on Tuesday, after Australia's central bank left its key interest rate unchanged and extended its quantitative easing program, saying that significant monetary support is needed to spur economic recovery.

The board decided to maintain the targets of 10 basis points for the cash rate and the yield on the 3-year Australian Government bond, as well as the parameters of the Term Funding Facility.

But the board decided to buy an additional A$100 billion of bonds issued by the Australian Government and states and territories when the current bond purchase program is completed in mid April. These additional purchases will be at the current rate of A$5 billion a week.

The bank is not expecting to raise its interest rates until 2024.

Policymakers expect the economic recovery to continue, with the central scenario being for GDP to grow by 3.5 percent over both 2021 and 2022. GDP is expected to return to its end-2019 level by the middle of this year.

The currency traded in a positive territory before the decision amid improved risk sentiment. Late Monday, U.S. President Joe Biden met with Republican senators at the White House to discuss a bipartisan stimulus deal.

The markets shrugged off worries about speculative trading by retail investors, as silver prices cooled and GameStop shares fell.

The aussie showed mixed performance against its key counterparts on Monday. While it dropped against the greenback and the euro, it held steady against the yen and the kiwi.

Having climbed to a 4-day high of 1.5771 at 10:15 pm ET, the aussie turned lower against the euro, with the pair trading at 1.5851. The aussie was trading at 1.5822 a euro at yesterday's close. Immediate support for the aussie is likely seen around the 1.62 level.

The aussie retreated 0.6 percent to 0.7619 against the greenback, after a gain to 0.7662 at 10:15 pm ET. Should the aussie falls further, it is likely to test support around the 0.74 region.

The aussie was down by 0.5 percent against the yen, at 79.96. This followed a 4-day rally to 80.37 at 10:15 pm ET. Further fall in the currency may challenge support around the 76.00 level.

The aussie lost 0.6 percent against the kiwi to hit a 1-1/2-month low of 1.0614, following a 4-day peak of 1.0677 set at 10:00 pm ET. The AUD/NZD pair was worth 1.0645 when it ended deals on Monday. Next key support for the aussie is likely seen around the 1.03 level.

Retreating from a 4-day high of 0.9825 seen at 10:15 pm ET, the aussie depreciated 0.6 percent to 0.9769 against the loonie. At Monday's close, the pair was valued at 0.9787. The aussie is seen facing support around the 1.03 level.

Looking ahead, Eurozone GDP data for the fourth quarter is scheduled for release in the European session.

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