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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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Free AccessMNI INSIGHT: RBA Welcomes Lower AUD As It Eyes Targets
When the Reserve Bank of Australia reviews its bond buying programme in February, MNI understands that the policies of other central banks will be a consideration in the RBA decision because of their impact on the Australian dollar.
The 7% fall in the Australian dollar this year has been welcomed by the RBA because it contributes to the bank achieving its goals of raising inflation in the 2% to 3% target range and delivering a tighter labour market, see: MNI STATE OF PLAY: RBA Unfazed By Omicron Or Inflation.
The central bank is still some way off delivering on its targets, and MNI understands that the lower dollar continues to be a key factor in the policy outlook for 2022.
CENTRAL BANKS TIGHTENING
Other major central banks tightening rates and tapering their own bond buying programmes, the RBA is aware that continuing with its own programme would be likely to have a depreciating effect on the AUD, which has fallen from USD0.79 in February to as low as USD0.70 in recent weeks. The unit ends the week at USD0.72.
The RBA’s forecasts in the most recent Statement of Monetary Policy were predicated on a level of USD0.74 for the AUD.
A lower dollar suggests that the bank can expect to achieve its targets earlier than these forecasts, which are for trimmed mean inflation to reach 2.5% and the middle of the RBA target range at the end of 2023.
The RBA estimates that a sustained 5% depreciation of the exchange rate is expansionary for the economy, with GDP growth roughly half a percentage point higher as a result. Forecast GDP based on an exchange rate of USD0.74 is 2.5% at the end of 2023.
The RBA is currently buying Australian government bonds at the rate of AUD4 billion a week, and this programme will be reviewed in February. By then, the RBA will hold around AUD350 billion or 35% of the bonds on issue, but MNI understands there are no plans yet to unwind these holdings by selling.
The RBA focused on three-year bonds as part of its yield target programme and did not buy many bonds at the long end of the curve, so MNI understands it is more likely to hold many of the bonds through to maturity.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.