Rather than the COVID induced lockdowns
This was a neutral hold, but as the expectations going into the meeting was for a dovish move from the RBA we saw some AUD buying out of the event. Heading into the RBA meeting expectations had been growing that the RBA would need to increase their asset purchase program in oder to provide further support for the economy as the delta variant takes hold. In the event the RBA decided to continue with their tapering program and signalled confidence with containment measures. The RBA also repeated that the economy had recovered more quickly than expected.
Tapering
The RBA intend to keep purchasing $5 billion of government securities a week until early September and then taper (reduce) purchases to $4 billion a week until at least mid November. This was a surprise as 13 of the 18 economists surveyed expected a delay to the September taper plans.
Why did the RBA do this?
Well, the RBA stated that their experience is that once the virus is contained the economy bounces back quickly. So, the RBA expect a dip in growth, but not a halt in growth. GDP is expected to be hit in the September quarter, but growth of over 4% for 2022 and 2.5% for 2023.
Good news from the labour market
One of the key notes for optimism is the strong labour market. The RBA took particularly encouragement from the unemployment rate falling to 4.9% in June. However, the unemployment rate is expected to move up a little due to the latest lockdowns. In 2022 the unemployment rate is expected to be around 4.25% and 4% by 2023.
Inflation not a concern
Underlying inflation is seen as being low at 1.75% The headline 3.8% year on year reading was seen as being an unwinding of some earlier COVID-19 related price declines
The takeaway
Confidence. The RBA has confidence that the population will be vaccinated, the latest outbreak contained, and the Australian economic recover has been delayed, but not cancelled. Going forward this does negate a strong AUDCAD short bias. However, if the delta variant radically changes Australia's outlook then AUDCAD may find sellers, but it would need to be from a deeper retracement now.
