The Australian Central Bank (RBA) assessed that the Omicron variant of COVID-19 would not disturb the economic recovery.
The AUD/USD exchange rate strengthened almost 0.6 percent to the range 0.7090s in today's trading (7/December), after the announcement by the Australian central bank (RBA) revealed a slightly more hawkish stance than before. The highest monetary authority in the Kangaroo country also said that the Omicron variant of COVID-19 would not disturb the economic recovery.
The RBA kept interest rates steady at 0.10 percent, and continued weekly bond purchases on a AUD4 billion scale until at least mid-February 2022. However, the RBA also stated its intention to "consider a bond-buying program" at its February 2022 policy meeting. Considerations include the actions of banks other central markets, market conditions, and progress towards Australia's inflation and employment targets over this time frame.
More strikingly, the RBA deleted its assessment last month regarding expectations of achieving its inflation target by the end of 2023. In the eyes of analysts, the RBA's actions signaled the possibility of inflation going higher so that tapering and interest rate hikes would be realized more quickly.
"We think there is a growing chance (that) the RBA will vote to end Quantitative Easing at its February meeting. However, a lot can happen between now and then, so we will keep an open mind on this question for now," David said. Plank, head of Australian economics at ANZ.
Gareth Aird of the Commonwealth Bank of Australia agrees. He said, "For now, we maintain our forecast that the RBA will taper (on Quantitative Easing) to AUD2 billion per week at the February 2022 board meeting, but note that they are pulling towards the line between those announcing further tapering or ending QE. For rates, we reiterate our main scenario that the RBA will start raising rates in November 2022."
Apart from that, there are still many factors that could limit the Aussie's rally going forward. In particular, it relates to the policy direction of the US Federal Reserve and several other major central banks which may be more hawkish than the RBA. China's economic developments can also affect Australia because of the close trade relations between the two countries.
“That (RBA statement) seems to have helped the AUD to edge slightly higher towards 0.7071, after hitting a more than one year record low below the 0.70 level late Friday, and (reaching) extreme oversold levels. Helped by China trade data better as well, (so) we wouldn't be surprised to see the bounce continue a little further towards 0.71, but would be surprised if (AUD) moves well above that level," said Robert Rennie, chief financial markets strategist at Westpac.
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