The Australian dollar started Tuesday with gains but reversed its movement after the monetary policy announcement from the Reserve Bank of Australia. While the central bank kept interest rates unchanged, markets still considered the policy decision to be surprisingly dovish.

As was widely expected, the RBA decided to keep its main interest rate unchanged at 0.1%. What actually surprised market participants was the announcement of an increase of the asset-purchase program by A$100 billion. The decision was considered to be dovish enough to send the Aussie down.

Unexpectedly, the central bank was rather optimistic in its projections for both domestic and global economies, noting that the outlook improved in the recent months. About the global economy the RBA said:

The outlook for the global economy has improved over recent months due to the development of vaccines. While the path ahead is likely to remain bumpy and uneven, there are better prospects for a sustained recovery than there were a few months ago.

As for the Australian economy, the bank provided the following assessment:

In Australia, the economic recovery is well under way and has been stronger than was earlier expected. There has been strong growth in employment and a welcome decline in the unemployment rate to 6.6 per cent. Retail spending has been strong and many of the households and businesses that had deferred loan repayments have now recommenced repayments. These outcomes have been underpinned by Australia’s success on the health front and the very significant fiscal and monetary support.

Yet the outlook for the monetary policy remained very dovish as the central bank signaled that it is not planning to raise interest rates anytime soon:

The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. For this to occur, wages growth will have to be materially higher than it is currently. This will require significant gains in employment and a return to a tight labour market. The Board does not expect these conditions to be met until 2024 at the earliest.

AUD/USD was up from 0.7162 to 0.7662 intraday but retreated to 0.7576 as of 15:16 GMT today. EUR/AUD gained from 1.5821 to 1.5876, rebounding from the daily minimum of 1.5770. AUD/JPY opened at 79.94, rose to the daily maximum of 80.37 but pulled back to 79.67 later.

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Post tags: AUD/JPY, AUD/USD, Australia, Dollar, EUR/AUD, Interest Rates, Reserve Bank of Australia

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