FXStreet reports that economists at Westpac expect that the Reserve Bank of Australia (RBA) will decide to extend the program for a further six months with another $100 billion in committed purchases. What’s more, the AUD/USD pair will be rising to 0.80 over the course of 2021 and there is a risk that the RBA will assess the aussie at 0.80 as being overvalued.
“The RBA will be making its decision on the extension of the program in the context that other central banks are continuing to expand their balance sheets. We expect that by June next year, despite a much more positive growth and risk environment, central banks will still assess that they have major challenges in reaching their inflation targets and will be continuing to expand their balance sheets given they have no flexibility on short-term interest rates.”
“For 2021 our expectation is that the RBA will maintain its yield curve control approach to target the three-year bond rate at the cash rate supplemented by two rounds of QE, each at $100 billion, with a slight increase in the proportion of semi-government bonds in the ‘mix’. Looking further out recall that our forecast is for the unemployment rate to fall to 5.2% by end-2022.”
“We also expect bond yields to be rising (AU 10 year bond rates up to 1.25% by end 2021 to 1.7% by end 2022). That will also be in the context of AUD/USD rising to 0.82 in 2022 (with upside risks). Under those circumstances, we expect the RBA will be unable to credibly support forward guidance that the cash rate will remain on hold for three years – out to mid-2025.”
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