- The RBA is expected to maintain policy at its meeting on Tuesday with rates at 0.10% and weekly purchases at AUD 4bln
- Guidance for no rate hikes until at least 2024 and recent taper announcement supports expectations for a pause
- Opaque jobs data and looming reopen also favours a patient approach from policymakers
OVERVIEW
The RBA is expected to keep its policy settings unchanged at its meeting on Tuesday with the Cash Rate Target and 3-Year Yield Target (NYSE:TGT) to be maintained at 0.10%. The central bank is also likely to refrain from any adjustments to its bond purchases which are currently at a weekly pace of AUD 4bln through to at least mid-February.
RBA GUIDANCE
The central bank has continuously reaffirmed its guidance that suggests rates will not increase before 2024 at the earliest and Governor Lowe even noted it is difficult to understand markets pricing in of hikes in 2022 and 2023, further adding that rates might increase in other countries but domestic factors are different.
Meanwhile, expectations for bond purchases to be maintained are supported by the timing as it was only just last month that the central bank tapered its weekly purchases and prolonged its buying schedule, which makes any near term adjustment unlikely, although the central bank has stated that the board will continue to review bond purchases in light of the economic and health situation.
RECENT DATA
In terms of the data, there haven't been many key releases since the last meeting aside from Employment Change which showed a larger than expected contraction at -146.3k vs. Exp. -90.0k (Prev. 2.2k) and although the Unemployment Rate surprisingly declined to 4.5% vs. Exp. 4.9% (Prev. 4.6%), the Australian Bureau of Statistics noted this reflected a large decline in participation during recent lockdowns rather than strengthening in labour market conditions and unemployed people have dropped out of the labour force given that it is difficult to actively look for work.
Nonetheless, this is not expected to spur the RBA to act as many were already bracing for a significant hit to the economy in Q3 due to Delta-related lockdowns and with policymakers likely to find solace from the looming resumption of activity in Australia’s most populous state of New South Wales which recently outlined its reopening road map that is expected to start on October 11th.
ANNOUNCEMENT
The announcement is set for 04:30BST/23:30EDT following the clock changes in Australia over the weekend, although no major impact to the market is expected given the near certainty for rates to be kept unchanged and with the unlikelihood of any adjustments to the central bank’s bond purchases.
Therefore, the focus will shift to the tone of the central bank which is likely to remain dovish, while a recent note from Rabobank suggested dovishness by the RBA is to restrict upside in AUD/USD which it targets at 0.7100 by year-end.