Australian Dollar Depreciates As RBA Ends Yield Curve Control Policy

australiandollar may07 02nov21 lt

The Australian dollar drifted lower against its major trading partners on Tuesday's Asian session, after the Reserve Bank of Australia left its key rate unchanged, but decided to relinquish the yield curve control program reflecting the improvement in the economy and the faster-than-expected progress towards the inflation goal.

The policy board of the RBA headed by Governor Philip Lowe kept its cash rate unchanged at a record low of 0.10 percent.

However, policymakers decided to discontinue the target of 10 basis points for the April 2024 Australian Government bond.

The board also voted to continue with the purchase of government securities at the rate of A$4 billion a week until at least mid February 2022.

The bank said it will not increase the cash rate until actual inflation is sustainably within the 2 to 3 percent target range. This will require the labor market to be tight enough to generate wages growth that is materially higher than it is currently. This is likely to take some time.

"The Board is prepared to be patient, with the central forecast being for underlying inflation to be no higher than 2.5 percent at the end of 2023 and for only a gradual increase in wages growth," Lowe said.

The aussie showed mixed trading against its major counterparts on Monday. While it declined against the euro and the kiwi, it held steady against the greenback and the yen.

The aussie dropped to a 5-day low of 0.7485 versus the greenback, down by 0.6 percent from a high of 0.7532 seen at 11:30 pm ET. The pair had finished Monday's deals at 0.7518. The aussie is likely to challenge support around the 0.72 region, if it drops again.

The aussie lost 0.7 percent to hit a 6-day low of 85.09 against the yen. The pair was valued at 85.69 when it ended trading on Monday. Further fall in the currency may challenge support around the 83.00 level.

The aussie shed 0.5 percent against the euro, touching a 4-day low of 1.5503. The euro-aussie pair was quoted at 1.5419 at Monday's close. Immediate support for the aussie is likely seen around the 1.58 level.

The aussie fell to its lowest level since October 22 against the kiwi, at 1.0430. The aussie had finished yesterday's trading session at 1.0458 against the kiwi. Should the aussie falls further, it is likely to test support around the 1.03 region.

Retreating from a 4-day high of 0.9322 set at 11:30 pm ET, the aussie declined to a 5-day low of 0.9261 versus the loonie. At Monday's close, the pair was worth 0.9299. The aussie is seen finding support around the 0.91 area.

Looking ahead, Swiss CPI for October and retail sales for September, as well as PMI reports from major European economies are due in the European session.

Canada building permits for September will be released in the New York session.

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