RBA Review - December 2020: Looking To 2021

• Markets were quick to look through the final RBA meeting of 2020, although the decision and accompanying statement weren't expected to provide much, coming hot on the heels of the Bank's latest round of monetary easing.
• The guidance passage was a cut & paste from the previous statement, while the Bank's language surrounding its ACGB purchase scheme and impact on the AUD was very matter of fact and had been outlined previously.
• Elsewhere, the tone surrounding the local and global economies was still cautious, even with Australia escaping the worst-case scenario given its relative success in employing its COVID-19 mitigation measures.
• The RBA flagged the broader risk backdrop as the driver behind the recent bid in AUD/USD (which is of course well documented/flagged in our preview), which shows that the RBA is comfortable with the recent movements in that particular cross, which are fundamentally driven. The fact that the RBA's AUD TWI measure sits a little further away from its YtD peak will also afford the RBA greater breathing room on that front.
• It was also keen to reiterate the need for an appropriate monetary-fiscal policy mix. All in all, it was a very vanilla affair, with little of note to go off. Now we move to the Governor's appearance in Canberra tomorrow.
• As we turn the page into 2021, the strength of the rebound of the Australian economy will be one of the key drivers that will determine just how nimble the Bank will have to be, whether that be re: the enforcement of its 3-Year yield target or the ultimate size/extension of its ACGB purchase scheme. Relative central bank policy will also be key in shaping matters on those fronts, as will the velocity of any potential hazardous market moves.

RBA Review - December 2020.pdf