The Aussie Sinks on Dovish Central Bank, Rates to Remain at 0.10% until 2024
A myriad of supporting fundamentals, including international banks unwinding the GME positions, a stable stock market, and capital outflow from havens to relatively "risky assets" combined to drive the USD higher versus the Aussie. AUD/USD is trading at 2021 lows, and may trend down as confidence in US dollars keeps rising. Aussie's weakness could be linked to the Reserve Bank of Australia's dovish position, saying rates will remain at current levels until 2024. Simultaneously, the RBA increased bond purchases by another $100 billion, a concern for the economy.
Compared to other regions, Australia is faring relatively well. The virus count rate is low, and the economy quite robust, even outperforming and exceeding investor expectations. Despite the virus's ravages on the global economy and the United States, it is likely GDP would increase to pre-COVID-19 levels by mid-2021. However, the central bank's primary concern is the low inflation--a reason that is forcing them to intervene, purchasing even more bonds, and keeping interest rates low to jolt inflation and wage growth. Nonetheless, the AUD/USD is on the upper end of the range and may likely retrace as candlestick arrangements favor the greenback.
Impact on AUD:
Bearish. The greenback is stable, and the RBA has confirmed that its monetary policy will be accommodative through 2024. There are inflation worries in the country, but the USD is well-positioned to add to the gains at least in the medium term, rewinding Aussie gains of 2020.
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