Australian Dollar Pulls Back After RBA Policy Decision
May 31 2021 - 9:55PM
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The Australian dollar came off from its early highs against its
major counterparts during Asian deals on Tuesday, after Australia's
central bank held rates steady and committed to keep borrowing
costs low until inflation returns to the target range.
The policy board of the Reserve Bank of Australia headed by
Governor Philip Lowe decided to leave its cash rate unchanged at a
record low of 0.10 percent.
The central bank retained the target yield on the 3-year
Australian government bond at around 0.1 percent and also
maintained the parameters of the Term Funding Facility and the
government bond purchase programme.
At the July meeting, the board will consider future bond
purchases following the completion of the second A$100 billion of
purchases under the current programme.
The board reiterated that it will not increase the cash rate
until actual inflation is sustainably within the 2 to 3 percent
target range.
For this to occur, the labor market will need to be tight enough
to generate wages growth that is materially higher than it is
currently, RBA said. This is unlikely to be until 2024 at the
earliest.
While a pick-up in inflation and wages growth is expected, it is
likely to be only gradual and moderate, the bank observed. In the
central scenario, inflation in underlying terms is expected to be
1.5 percent in 2021 and 2 percent in mid 2023.
In economic news, the latest survey from IHS Markit showed that
Australia's manufacturing sector continued to expand in May, and at
a faster pace, with a survey record manufacturing PMI score of
60.4.
That's up from 59.7 in April and it moves further above the
boom-or-bust line of 50 that separates expansion from
contraction.
Survey from the Australian Industry Group showed that
Australia's manufacturing sector continued to expand in May, and at
a faster pace, with a Performance of Manufacturing Index score of
61.8.
That's up from 61.7 in April and it moves further above the
boom-or-bust line of 50 that separates expansion from contraction.
This was the highest monthly result for the Australian PMI since
March 2018 and a eighth consecutive month of recovery from the
severe disruptions of Covid-19 in the second quarter of 2020.
The aussie held steady against its major rivals on Monday,
except the greenback.
The aussie pulled back from a 6-day high of 0.7768 against the
greenback, with the pair trading at 0.7741. The aussie is likely to
face support around the 0.75 region.
Following a 4-day high of 85.00 hit at 11:15 pm ET, the aussie
retreated to 84.71 against the yen. On the downside, 83.5 is likely
seen as the next support for the aussie.
The aussie eased off to 1.5796 against the euro, after a 4-day
rise to 1.5748 at 10:10 pm ET. If the aussie extends drop, 1.61 is
seen as its next support level.
The aussie was trading at 1.0646 against the kiwi and 0.9334
against the loonie, down from its prior 6-day high of 1.0663 and a
4-day high of 0.9360, respectively. The aussie is seen finding
support around 1.05 against the kiwi and 0.92 against the
loonie.
Looking ahead, U.K. Nationwide house prices for May are due out
at 2:00 am ET.
At 2.30 am ET, the Federal Statistical Office releases Swiss
retail sales for April.
PMI reports from major European economies, Swiss GDP data for
the first quarter, German jobless rate for May, Eurozone CPI for
the same month and jobless rate for April will be featured in the
European session.
Canada GDP data for the first quarter, U.S. ISM manufacturing
PMI for May and construction spending for April are set for release
in the New York session.
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