Initial Knee Jerk Higher On Optimistic RBA Retraced

AUD/USD catches a bid following the RBA announcement, reversing some of its move lower earlier in the session. The RBA kept rates unchanged as expected, but revised up growth forecasts with growth of 4.75% now expected over 2021 and 3.5% over 2022. A pick-up in business investment is expected and household spending will be supported by the strengthening in balance sheets over the past year. The unemployment rate is expected to continue to decline, to be around 5 per cent at the end of this year and around 4.5% at the end of 2022. Inflation was highlighted as a potential headwind, with a pick up from the recent soft print expected to only be modest and gradual.

• The board noted it would not consider an extension of the term funding facility beyond June 30 2021. At its July meeting, the Board will consider whether to retain the April 2024 bond as the target bond for the 3-year yield target or to shift to the next maturity, the November 2024 bond.
• AUD/USD last down 8 pips at 0.7745, off session lows at 0.7735, and having seen a knee jerk reaction to 0.7755. As a note, data earlier that showed a narrower trade surplus than expected thanks to a fall in exports saw limited reaction. The trade surplus narrowed to AUD 5.574bn, exports fell 2% against an expected 4% rise, while imports rose 4%, less than the 8% estimated.