Forex Market: AUD/USD trades well above last week’s three-month trough, RBA rather optimistic about Australia’s economic outlook

Despite being a notch weaker on Tuesday, AUD/USD was still holding ground above the 0.7600 mark, as the Reserve Bank of Australia left the official cash rate without change at a record low level of 0.10% at its policy meeting earlier in the day and noted that the Australian economy had been recovering at a faster-than-expected rate. The RBA also noted that employment in February had reached pre-pandemic levels.

Bank policy makers once again reiterated their commitment to keep monetary policy highly accommodative until at least 2024, when actual inflation in Australia is expected to be sustainably within the target range of 2% to 3%.

When it comes to 3-year government bond yields, the central bank said its board remained committed to the yield target of 0.10%. Later in 2021, policy makers will consider whether to retain the April 2024 bond as the target bond or to shift to the November 2024 maturity.

“Despite the improvement in the labour market the bank is not satisfied,” Ben Udy, Australia economist at Capital Economics, was quoted as saying by Reuters.

“With the second round of bond purchases announced in February set to have run its course by the end of August, we still expect the Bank to unveil a third round of QE in June bringing total purchases to A$300 billion.”

The RBA said that the second $100 billion government bond buying program was due to be initiated next week.

In regard to surging housing prices, the RBA said that borrowing trends would be monitored carefully and lending standards would have to be maintained.

Overall, market sentiment was also supported by the latest surveys on services sector conditions in China and the United States, as both gauges easily outstripped a consensus of analyst estimates.

As of 8:57 GMT on Tuesday AUD/USD was edging down 0.24% to trade at 0.7628, while moving within a daily range of 0.7620-0.7661. Last Thursday the pair slipped as low as 0.7532, which has been its weakest level since December 23rd 2020 (0.7516). The major currency pair has gained 0.41% so far in April, following a 1.45% drop in March.

Bond Yield Spread

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled -9.5 basis points (-0.095%) as of 8:15 GMT on Tuesday, up from -10.6 basis points on April 5th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7635
R1 – 0.7672
R2 – 0.7697
R3 – 0.7734
R4 – 0.7771

S1 – 0.7610
S2 – 0.7573
S3 – 0.7548
S4 – 0.7523