Extra $100 Billion Added

The Australian Dollar has traded lower overnight and across the start of the European session today as the RBA took bulls by surprise. At the bank's February meeting, held overnight, expectations were for an unchanged decision across the board given the country's highly effective handling of the pandemic which has allowed the country to mostly return to normal over recent months.

Rates on Hold Until 2024

However, despite keeping rates on hold at current record lows of 0.1%, the bank announced the unexpected move of adding a further $100 billion in asset purchases to its bond buying program, doubling the current scope of its operation. The RBA expects purchases of government and federal debt to last until September at the earliest and does not expect to be in a position to raise rates until at least 2024.

The bond buying program, which now stands at $200 billion in size, is part of the bank's overall quantitative easing strategy as well as the nearly $200 billion in cheap credit which has been made available to banks in a bid to boost lending to small and mid cap businesses.

Recovery Progressing But Risks Remain

While RBA governor Lowe said that the recovery was well on its way, he was clear in highlighting that there are still plenty of risks ahead, including the potential impact from ending of the bank's JobKeeper program and supplementary welfare payments due to end in March.

The RBA's outlook was broadly optimistic, however. The bank projects the domestic economy to return to pre-pandemic levels by the middle of this year. However, Lowe added the caveat that inflation and wage growth are likely to take longer to rebound and said that rates would not be raised until inflation was back well within the bank's 2% - 3% target.

New Forecasts Due Friday

Traders now await the bank's new set of economic forecasts due on Friday. However, Lowe front-ran the release a little saying that the bank now forecasts 2021 growth of 3.5%, down from the 5% forecast in November.

Technical Views

AUDUSD

The rally in the Aussie has seen price come up against the long term bearish trend line from 2011 highs which is holding as resistance for now. However, while price can hold above the .7428 level support, the medium term view is for a continued push higher and a breakout above the trend line targeting .8130 initially. To the downside, should the Aussie fall below .7428, .6788 is the next support to watch.

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