Forex Market: AUD/USD plunges to a fresh 38-week low as RBA Minutes stress on high uncertainty surrounding H2 outlook

AUD/USD extended losses on Tuesday after the minutes from the RBA’s policy meeting in August showed that the recent outbreaks of the Delta variant of the coronavirus and lockdowns in Sydney, Melbourne and Canberra had disrupted economic recovery and led to a high degree of uncertainty surrounding the outlook for the second half of 2021.

“Members considered the case for delaying the tapering of bond purchases to $4 billion a week currently scheduled for September 2021,” the Minutes also stated.

The document noted the RBA would continue to review its asset purchasing program in light of economic conditions and the health situation in the country, as well as their implications for the expected progress towards full employment and the central bank’s inflation objective.

The RBA board once again noted that interest rates would not be raised until actual inflation was sustainably within the 2% to 3% target range.

“The RBA’s assumptions around COVID-19 restrictions, and therefore the near term economic outlook, look more and more optimistic as time goes on,” CBA economist Kristina Clifton was quoted as saying by Reuters.

“We see a clear risk that the RBA reverses the taper decision as COVID-19 case numbers rise and the share of the population subject to lockdowns increases,” she added.

The yield on Australian 10-year government bonds dropped to 1.16%, while being not far from a seven-month trough.

As of 8:34 GMT on Tuesday AUD/USD was retreating 0.56% to trade at 0.7294, after earlier touching an intraday low of 0.7278. The latter has been the pair’s weakest level since November 23rd 2020 (0.7265). The major currency pair has dropped 0.67% so far in August, following another 2.07% loss in July.

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 -16.33 basis points (-0.1633%) as of 8:15 GMT on Tuesday, up from -16.6 basis points on August 16th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7342
R1 – 0.7366
R2 – 0.7396
R3 – 0.7419
R4 – 0.7442

S1 – 0.7312
S2 – 0.7289
S3 – 0.7259
S4 – 0.7228