Daily Commentary BY THE CURVE TEAM –

Aussie Dollar Easing

25th of March, 2021

The Aussie dollar, which the RBA has been cognisant on when determining policy, has eased over the past month.

There are many considerations for the RBA when determining whether to change or maintain their policy. Inflation, employment and wage growth are considered the most important.

Recently, the dollar has taken on new significance. As other central banks around the world lowered rates and expanded QE programmes at the beginning of covid, it left Australian bond rates high relatively to the rest of the world.

As a result, the Australian Dollar faced upward pressure. It prompted the RBA to cut the cash rate further late last year and announce a QE programme.

Over the past month, the dollar has fallen from above 0.80 to the US to below 0.76. There are multiple ways to interpret how the RBA will respond if the Dollar is subject to further downward pressure.

They could view it as a sign that their QE programme is effective, so be galvanised to maintain and even extend it later in the year. Or they could view the Australian Dollar as having fallen sufficiently, meaning they can end the QE programme.

A caveat to this would be estimating how high the Australian Dollar will go without QE. In reality, the most important factor will be the policies of other central banks in determining the RBA’s decision. Among all the positive economic data coming out, it is worth remaining mindful of this.

Josh Stewart

Associate - Money Markets