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Australian Dollar Trades Higher After RBA Stands Pat

The Reserve Bank of Australia made a monetary policy announcement today. While the Australian dollar rose a bit after the central bank announced its decision, the currency continued to move sideways below the opening level afterward. Yet lat…

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The Reserve Bank of Australia made a monetary policy announcement today. While the Australian dollar rose a bit after the central bank announced its decision, the currency continued to move sideways below the opening level afterward. Yet later, the Aussie made a push to the upside, which helped the Australian currency to climb above the opening level against all other most-traded currencies.

 

As was widely expected, the RBA kept its monetary policy unchanged, leaving the benchmark interest rate at 0.1%. The central bank sounded rather optimistic in its statement:

In Australia, the economic recovery is well under way and has been stronger than was earlier expected.

The bank argued that accommodative monetary policy helped the economy to recover and kept the Australian currency from excessive appreciation:

The current monetary policy settings are continuing to help the economy by keeping financing costs very low, contributing to a lower exchange rate than otherwise, and supporting the supply of credit and household and business balance sheets.

Yet the statement also reiterated that the RBA does not expect to start raising interest rates in the next few years:

The Board remains committed to maintaining highly supportive monetary conditions until its goals are achieved. The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. For this to occur, wages growth will have to be materially higher than it is currently. This will require significant gains in employment and a return to a tight labour market. The Board does not expect these conditions to be met until 2024 at the earliest.

In other news, the Australian Bureau of Statistics reported that the current account balance widened from A$10.7 billion in the September quarter to A$14.5 billion in the December quarter, exceeding the median forecast of A$13.0 billion. Building approvals dropped by 19.4% in January, far more than analysts were expecting — 2.1%. Year-on-year, approvals rose by 19.0%.

AUD/USD traded at 0.7801 as of 13:06 GMT today after opening at 0.7771 and falling to the daily low of 0.7736. EUR/AUD dropped from 1.5497 to 1.5417 after rising to the daily high of 1.5535 earlier. AUD/JPY opened at 82.96, fell to the session minimum of 82.62 but bounced to 83.38 later.


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