It was quite an interesting reaction to the RBA meeting today, with AUDUSD initially spiking higher as the RBA surprised and still delivered some tapering by reducing purchases to AUD4bn a week (from AUD5bn before). In my preview, I outlined the reason why this might be the case, with purchases still outpacing supply meaning that being on hold would be an even more dovish move.
However, the AUD quickly pared gains and fell into negative territory as Governor Lowe said this pace of purchases would be maintained at least until February, when previously it had been expected to be reviewed again in November.
The decision to proceed with the taper while extending duration showed the RBA was prepared to be flexible with Australia's economy due to contract significantly this quarter as lockdowns take their toll.
AUDUSD chart below, red box shows the initial move higher, followed by the retracement lower.
NET NET:
I think this is enough to bring more AUD weakness back to the fore. Obviously a lot depends on the commods situation but I remain bearish given the ongoing lockdowns and the way these are likely to be extended until a sufficient level of vaccination is achieved.
Continue with SELL AUDCAD.
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