AUD traders heads up - Reserve Bank of Australia set to begin to "dismantle" its QE program in July (ex-RBA Edwards)
Comments from ex-RBA monetary policy board official John Edwards reported by Bloomberg (may be gated).
In brief Edwards says:
- developments in the economy have "gone far more favorably than their earlier forecasts"
- and thus, "My sense is they may take this opportunity to dismantle some of the elements of their structure"
That is, he says:
- RBA is likely to stick with its current yield target bond (ie. the April 2024 bond) and not extend to the November 2024 bond
- scale back its QE program
Its a "tactical" decision says Edwards, leaving the Bank scope to react if the economy sours:
- "To commit to it really does lock them in a bit on the timing of moving the cash rate" Edwards said of a moving to the later bond. "It's an unnecessary risk because they can at any point between now and April '24 announce an extension if things go unfavorably."
Edwards also weighed in on the Federal Reserve:
- the direction of Fed policy is still "completely unclear"
- the Biden administration's major Covid support program and two more policy packages of similar scale in the pipeline will require huge deficit increases
- "Consequently there'll be an expectation of further Fed purchases and lack of clarity about how that will play out in the market," Edwards said. "But it could mean that the U.S. Treasury rates actually go up and the RBA is relieved of a bit of pressure on Australian yields."
RBA meet on July 6. Last week saw a cascade of analyst expectations against switching to the November '24 bond as per Edwards above.
And, for a further preview, this from Giles is great: