AUDUSD, H1
RBA kept main policy tools unchanged, with the cash rate still at 0.25% and the three-year government bond target also at 0.25%. The central bank vowed to keep the cash rate at the current level until progress is made toward full employment and it is confident that inflation will be within the 2-3% target band. 21 of 22 economists polled by Reuters last week expect the rate to be unchanged until the end of 2021. At the same time the RBA broadened the pool of collateral in daily market ops to include ones issued by non-banks with investment grade (IG) ratings. At the same time the bank said it is prepared to scale government bond purchases back up again if necessary. The RBA’s forecasts see GDP contracting 6% this year, following by a rebound of 6% in 2021. Reaction to the much anticipated announcement was muted. AUDUSD rose from under 0.6400 (the daily pivot point) yesterday, to R2 at 0.6460, earlier. AUDJPY trades up around 0.6900, from under 0.6800 yesterday.
Japan and mainland China were still closed for holidays, which made for another quiet session in Asia overnight. Those stock markets that were open moved higher, after Wall Street managed to close higher on Monday. The Hang Seng has lifted 0.8%, the ASX 1.5%, while Australian bonds were under pressure. Australia’s Construction PMI fell back to just 21.6 from 37.9, but weekly consumer confidence numbers improved. In FX markets the Dollar weakened slightly and USDJPY fell back to 106.63. The front end WTI future meanwhile lifted to USD 22.00.
In Europe the March 10-year Bund future is down -4 ticks at 174.00. Wall Street managed slight gains on Monday and US futures are also higher after a largely positive session in Asia. DAX and FTSE 100 are posting gains of 1.5% and 1.3% respectively. New virus cases continue to fall and countries slowly ease out of lockdowns, although it is clear that the impact of virus-restrictions on the economy will be larger than initially expected, which will continue to put pressure also on Eurozone spreads and in particular BTPs. The ECB has created more flexibility in its emergency bond buying program and at least for now is prioritising bond markets that are in particular under pressure, but today’s ruling by Germany’s constitutional court on the central bank’s QE measures has the potential to throw a spanner in the works. Data releases today focus on final manufacturing and composite PMIs for the UK with Switzerland releasing inflation numbers.
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Stuart Cowell
Head Market Analyst
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