Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

AUD Scenarios: What If RBA Reverses Taper Call?

By Kathy LienForexAug 03, 2021 06:50
AUD Scenarios: What If RBA Reverses Taper Call?
By Kathy Lien   |  Aug 03, 2021 06:50
Saved. See Saved Items.
This article has already been saved in your Saved Items
The first week of August will be a busy one for the financial markets. Employment reports are due for release from the U.S., Canada and New Zealand, along with central bank meetings in Australia and the U.K. 
August is traditionally a challenging month for stocks, and today we got a glimpse of the potential seasonal impact. The Dow Jones Industrial Average hit a record high at the start of New York session, but gave up all its gains by the end of the day. U.S. data was weaker than expected, with the ISM manufacturing index sinking to 59.5 from 60.6. Economists predicted a pickup in manufacturing activity, but shortages of raw materials and a shift in spending to services caused activity to slow. Overall, the number is still strong, particularly given the sharp rise in the unemployment index, but that did not stop the U.S. dollar from following Treasury yields lower. The big story today was the plunge in yields. At one point, 10-year rates were down 5%. 
Tonight’s Reserve Bank of Australia monetary policy announcement will be one to watch. The Australian dollar was one of the best performers on Monday, but most Australian banks are calling for the RBA to renege on its plan to taper bond purchases from September forward. The initial announcement to taper bond buys was made on July 5. At the time, Melbourne was coming out of a lockdown and Sydney just went into what was supposed to be a two-week snap lockdown. Darwin, Perth and Brisbane also tightened restrictions, which meant that more than 12 million Australians were in lockdown, but the period was expected to be short. Fast forward a few weeks, and lockdowns in Brisbane and Sydney were extended, with Sydney marking its sixth week under stay-at-home orders. All of this has and will continue to take a toll on Australia’s economy as the country faces a reasonable chance of contraction in the third quarter.  
Delaying taper plans is a no-brainer for the RBA. The only question is whether it will simply push it to October/November or leave it open ended. The worst-case scenario for the Australian dollar would be if the RBA reverses its taper call and provides no precise delay date. In this scenario, we could easily see AUD/USD drop to fresh eight-month lows. If it delays taper by only a month or two, AUD/USD traders will be disappointed and AUD/USD could still drop to eight-month lows as that’s less than a cent away, but the losses will be milder than an open-ended delay or a straight up reversal with no new plans. However, if the RBA shrugs off lockdowns and keeps its plans to start tapering bond purchases in September intact, AUD/USD will rip higher, with a likely move towards 75 cents.
As the year progresses, differences in monetary policy direction will become a stronger driving force for currencies. This week’s Australia and U.K. rate decisions will highlight the divergence between two countries with vastly different COVID situations. Large parts of Australia were in lockdown in July, whereas the U.K. removed all restrictions last month. The Bank of England will be debating a further reduction in bond purchases. Divergences like these are not unique to these two countries, and as they become more apparent, the impact on currency pairs will be more significant.
AUD Scenarios: What If RBA Reverses Taper Call?

Related Articles

AUD Scenarios: What If RBA Reverses Taper Call?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Sophie Williams
Sophie Williams Aug 05, 2021 16:59
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Great read. Thanks for the insight!
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email