European session review: AUD strengthens after RBA’s policy update

AUD appreciated against most of its major rivals in the European session on Tuesday following the announcement of the policy decision by the Reserve Bank of Australia (RBA).

At the July meeting, the RBA’s policymakers decided to leave the cash rate unchanged at 0.10%, in line with expectations. The central bankers also retained the April 2024 bond as the bond for the yield target and maintained the target of 10 basis points. At the same time, they announced an extension of the Bank’s current asset purchase program to “until at least mid November” (the program was originally planned to be completed in early September) but said the rate of the purchases would be reduced to AUD4 billion a week from AUD5 billion currently. “The Board is responding to the stronger-than-expected economic recovery and the improved outlook by adjusting the weekly amount purchased,” the RBA noted in its policy statement. In addition, the RBA’s board reiterated it “remains committed to maintaining highly supportive monetary conditions to support a return to full employment in Australia and inflation consistent with the target”. It also pledges not to hike the cash rate until actual inflation is sustainably within the 2% to 3% target range. The Australian central bank’s main scenario for the economy is that this condition will not be met before 2024.