RBA Shocks Market With Rate Cut & QE

Trading Tips

The outbreak of COVID-19 has prompted a co-ordinated response from global central banks not seen since the GFC. With all central banks in the G10 space having now cut rates in a bid to help provide economic relief during the mas disruption caused by the virus, the RBA has joined forces with the Fed, the ECB and the BOE in also adding to its QE program.

RBA Announces .25 Rate Cut & QE

Following a .50% rate cut earlier in the month (the RBA was the first central bank to cut rates in response to (COVID-19), the RBA announced overnight that it is lowering rates again to new record lows of 0.25%. Alongside the additional rate cut, the RBA announced that it will offer a longer-term funding facility to banks of at least $ 90 billion over a 3-year term at ultra-low rates of just 0.25%. The RBA also noted that it will continue to purchase Australian government bonds in a bid to help keep the 3-year government bond at 0.25%

Finally, the RBA announced that it will increase the exchange settlement balances at the RBA from the current 0% to 0.10% and will also add to 1 and 3 month repo operation, until further notice, and 6 month operations until no longer needed.

The move is the latest in a series of double-barrelled efforts from central banks such as the Fed and the BOE which have also employed rate cuts alongside additional measures in a bid to help stabilise their respective economies.

AUD Falls But Losses Reversing Already

The Australian Dollar was sold heavily in response to the news with AUDUSD dropping down to it slowest rate since 2002 at just 0.55. However, the initial reaction has been tempered somewhat in early European trading today with AUD reversing losses against CAD, JPY & GBP. AUDNZD has also recovered following an earlier push which saw the pair trading back down to near parity.

While this latest move marks a dramatic escalation in response from the RBA, it is unlikely to be the end. With lock-downs underway around the globe and travel restrictions building, the global economy is going to come under further pressure over coming months. Until a vaccine is found, economic uncertainty will remain the status quo and the RBA, and other central banks, will continue to be engaged in a battle to help buffer the economy.

Technical View

AUDUSD (Bearish below .5998)

From a technical viewpoint. The AUDUSD has seen a dramatic sell off this year and has broken through some key levels. The breakdown below the 2008 low (.5998) is an important technical development. The AUDUSD has been moving in a long term descending triangle pattern and the break of this levels means that a further move down to the 2001 lows of .4756 is now a risk unless price recovers the .5998 handle.

RBA Shocks Market With Rate Cut & QE

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