Monthly Wrap: AUD – RBA QE expansion limits Australian dollar

Key Takeaways:
 

• RBA’s quantitative easing expansion in early-February surprises markets
• Australian dollar buoyed by optimism over recovery from the coronavirus pandemic
• AUD Monthly lows: £0.55, €0.62, $0.75, C$0.97, NZ$1.05
• AUD Monthly highs: £0.56, €0.64, $0.78, C$0.98, NZ$1.08

 
The Reserve Bank of Australia (RBA) announced at the beginning of this month that its quantitative easing (QE) scheme would be expanded.

This dovish shift in policy came as a surprise to markets, causing a rise in speculation that the RBA could become more dovish on other aspects of monetary policy as well.

The shift in tone, combined with some mixed signs in Australia’s economic performance, dampened demand for the Australian dollar considerably.

However, Australia continues to handle the coronavirus pandemic well, and the nation will reportedly begin its vaccine rollout in the coming weeks.

Other recent Australian data is showing more signs of resilience to the pandemic as well. Australia’s recent consumer and business confidence data have come in well above expectations, showing that the nation is optimistic about recovery.

What’s more, the RBA’s latest meeting minutes report, published earlier in the week, showed that the bank was not looking at further monetary policy easing and certainly not negative interest rates.

As a result, while the RBA’s loose monetary policy had been weighing heavily on appetite for the Australian dollar, the currency’s potential to advance again is quite strong.

If Australia’s coronavirus situation continues to point towards a strong recovery from the pandemic, the Australian dollar may be positioned to perform better than some other major currencies.

The risk and trade-correlated Australian dollar will also likely benefit from improving market sentiment as global vaccine rollouts pick up and a US fiscal stimulus package approaches completion.

Of course, any strong Australian data in the coming weeks could make investors even more confident in AUD again.

Surprising Australian job market or retail sales data could have an impact on the ‘Aussie’ for much of late-February, and February PMI data could drive movement as well.

A lot of news at the beginning of March could also influence the Australian dollar outlook. The RBA will hold its March policy decision, and Australia’s Q4 2020 growth rate report is due later that same week.