AUDUSD drops after RBA extends bond purchase period

The Reserve Bank of Australia announced a monetary policy decision today. Interest rates were left unchanged with the main rate remaining at 0.1%. Such a move was expected. However, what was not entirely certain was how RBA would react to a recent Delta coronavirus outbreaks in the country and new restrictions. Most economists expected the RBA to delay tapering. Nevertheless, RBA stuck to the idea of lowering weekly government bond purchases to A$4 billion, down from A$5 billion, but decided to change the timeline. Bond purchase programme was set to be reviewed in mid-November but the Australian central bank announced that weekly purchases of A$4 billion will continue until at least mid-February. Why? Longer than expected impact of Delta coronavirus variant.

When it comes to market reaction, it was mixed. The Australian dollar moved higher after the decision announcement as investors welcomed the slower pace of bond purchases. However, as the time passed, investors' attention seemed to gravitate towards the decision to extend the buying period. AUD gave back gains and became the worst performing major currency. Today's pullback seems to support the thesis that the downtrend on AUDUSD is not over yet. The pair pulled back from the key 0.7450 area at the beginning of the week, marked with the upper limit of market geometry and 38.2% retracement of the downward move launched in late-February 2021. AUDUSD is approaching two short-term swing levels that marked limits of a narrow trading range in July-August - 0.7400 and 0.7340. Dropping below the latter would pave the way for a test of recent local low in the 0.7100 area.

Source: xStation5