Risk is on but not for the Australian dollar which is retesting the lows again:
There is only one reason for this today. The excellent work of the uber-dovish RBA, via RBC:
RBA Governor Lowe spoke overnight, erring towards more rather than less (confirmation of a rolling 3y YCCtarget, further emphasis on the degree of slack in the economy, structural headwinds to wages).Our rates team notes that the lack of further detail on the composition of QE2 suggests that the current split between ACGB and semi buying is likely to remain unchanged at 80/20. On TFF, given ample (cheap) deposits and modest use of the TFF, this maybe one measure that is pared back. Finally the Governor has laid the groundwork for macro pru to be redeployed.
Capt’ Lowe explicitly declared no TFF pullback. As well, with macroprudential policy now the front line response to any house price boom, there is NO prospect of any tightening in the cash rate. Citi rounds us off:
RBA Governor Lowe spoke earlier in the Asia session following the RBA meeting yesterday, which saw the central bank leave the base rate and 3yr bond yield target at 0.10%, as broadly expected. There was a dovish point though, with the bank announcing earlier than anticipated that it would purchase an additional AUD100bn of bonds issued by the government and states and territories when the current purchase program is completed in mid-April.
Today, while AUD trades marginally higher vs the USD at 0.7615 as a function of benign risk sentiment currently, it is facing pressure vsNZD, not only on the above, but also as the market reprices expectations around Antipodean central banks. Comments from Lowethatthat interest rates won’t rise until 2024, “if not later” as well as references to the need to avoid “unwelcome upward pressure on the exchange rate” are likely weighing via the crosses
Australia has gone to ZIRP and is going to stay there for the currency.
I still expect one more round of AUD upside as the global economy surges out lockdowns but that will be it as China slows and iron ore comes back to earth.
Don’t fight the RBA!
