Asian session review: AUD declines after RBA’s policy update

AUD fell against most other major currencies in the Asian session on Tuesday after the Reserve Bank of Australia’s (RBA) policymakers signaled that they stand firm with their policy stance set out to taper bond purchases, but postponed any additional taper until at least February 2022.

At the latest meeting, the Reserve Bank of Australia’s (RBA) officials decided to leave the cash rate unchanged at 0.1 percent at its September monetary policy meeting, as widely expected. In addition, they maintained the 3-year bond yields target at 0.1 percent and the bond purchase at the rate of AUD4 billion a week, which, however, was extended until at least February 2022 from November 2021. The RBA’s governor Philip Lowe explained that the Bank’s decision to extend the purchase period until February next year was a response to “the delay in the economic recovery and the increased uncertainty associated with the Delta outbreak”. He also highlighted that the “setback to the economic expansion is expected to be only temporary” and the economy is seen to “be growing again in the December quarter and is expected to be back around its pre-Delta path in the second half of next year.” (As a reminder, the RBA announced in August that it plans to start tapering the bond purchases in early September to AUD4 billion from AUD5 billion and said that the new weekly bond purchases would last till at least mid-November). In addition, the RBA reiterated it would not increase its cash rate until actual inflation is sustainably within the 2-3% target range.

Following the RBA’s policy update, the Australian dollar rose briefly against its major rivals, but then erased all these gains and began slipping.

Meanwhile, more steep declines in AUD were capped by improvement in overall risk sentiment, which was bolstered by better-than-expected trade data out of China. The report from the General Administration of Customs of China (GACC) revealed that the country’s exports jumped 25.6% y/y in August, exceeding economists’ expectations for a 17.1% y/y rise. At the same time, its imports climbed 33.1% y/y last month, also beating economists’ forecast for a 26.8% y/y increase. As a result, China recorded a trade surplus of $58.34 billion in August, compared to an upwardly revised surplus of $56.59 billion in July and $57.25 billion in August 2020. This was the largest trade surplus since January. Economists had expected a trade surplus of $51.05 billion in August. China is Australia's largest trading partner.