Forex Market: AUD/USD gains as RBA keeps rates intact, reduces weekly bond purchases

AUD/USD rose on Tuesday after the Reserve Bank of Australia (RBA) said it would taper bond purchases from September, while also reiterating that an interest rate hike would not occur until at least 2024.

At the same time, the RBA official cash rate was kept intact at a record low level of 0.10% during the bank’s policy meeting earlier on Tuesday, in line with market expectations.

The central bank said it would reduce the weekly pace of bond purchases to AUD 4 billion ($3 billion) from September to at least mid-November, from AUD 5 billion per week currently.

Additionally, the central bank’s three-year bond yield target was left without change at 0.10% on the April 2024 bond, rather than rolling it over to the November 2024 maturity.

RBA policy makers once again said that interest rates would not be raised until actual inflation was sustainably within the 2% to 3% target range, and, according to the bank’s central scenario, such a condition will probably not be met prior to 2024.

“That sounds far less confident than its previous view that the conditions are “unlikely to be met until 2024 at the earliest”,” Marcel Thieliant, a senior economist at Capital Economics, was quoted as saying by Reuters.

“The Bank will probably slow the pace of its bond-buying further in November and we suspect it will end them completely by the middle of next year. And we reiterate our view that it will raise rates at the beginning of 2023.”

As of 8:57 GMT on Tuesday AUD/USD was advancing 0.74% to trade at 0.7579, after earlier touching an intraday high at 0.7599. The latter has been its strongest level since June 28th (0.7602). The major currency pair has risen 1.10% so far in July, following a 2.99% drop in June.

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 -16.67 basis points (-0.1667%) as of 8:15 GMT on Tuesday, up from -17.2 basis points on July 5th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7523
R1 – 0.7538
R2 – 0.7552
R3 – 0.7566
R4 – 0.7581

S1 – 0.7510
S2 – 0.7495
S3 – 0.7481
S4 – 0.7467