Australian dollar boosted as RBA presses on with tapering
By Neil Dennis
06:50, 3 August 2021
The Australian dollar climbed on Tuesday after the Reserve Bank of Australia (RBA) maintained its plan to begin tapering asset purchases in September.
The Aussie climbed 0.5% against the US dollar to $0.7397, gained 0.4% to Y80.74 versus Japan’s yen, and rose 0.4% to A$1.8785 against the pound.
Gains were built around a hawkish monetary policy meeting on Tuesday, at which the central bank pushed ahead with plans to begin reducing its bond purchases under its quantitative easing programme.
Delays declined
Many had expected the RBA to delay the tapering process – scheduled to begin in September – as rising numbers of COVID-19 cases in Australia threaten to slow the momentum of the country’s robust economic recovery.
Robert Rennie, head of financial market strategy at Westpac Institutional Bank, said: “The RBA appears to be looking through the current delta breakout in New South Wales noting that ‘once virus outbreaks are contained, the economy bounces back quickly’.”
Conversely, the central bank became more upbeat about the recovery as it maintained plans to taper its weekly QE purchases to A$4bn from the current A$5bn from early September.
“The RBA delivered a hawkish surprise by not delaying the tapering of its bond purchases,” said Marcel Thieliant, senior Japan, Australia and New Zealand economist at Capital Economics.
He added: “And by predicting that it will hit its full employment mandate and make further progress towards its inflation target, it has opened the door for earlier rate hikes than its current guidance of 2024.”
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New Zealand hawks
There were further hawkish moves from the Reserve Bank of New Zealand (RBNZ) on Tuesday also, which helped lift the NZ dollar.
Indeed, the Kiwi even outpaced its neighbour’s currency, rising 0.1% against the Aussie to NZ$1.0542. The Kiwi climbed 0.6% to $0.7011 versus the US dollar and was 0.5% higher at Y76.50 against the yen.
The RBNZ, which has already ended its QE asset purchase programme as robust economic growth drives a boom in house prices, is widely expected to raise interest rates later this year.
On Tuesday, however, it focused its tightening on the housing market by restricting lending on mortgages with high loan to value ratios.
Read more: Reserve Bank of Australia to move ahead with tapering
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