The latest RBA minutes suggest that the worst has passed for Australia. The Australian economy had been facing a number of headwinds recently which had led to record shorts from speculators in the recent COT reports.
Falling Iron ore prices (offset a little by rising coal), China’s slowdown, the Evergrande crisis, and the delta variant locking down parts of the country have all meant that sellers were encouraged. See the latest COT chart below:
So, the RBA did not surprise markets at all and kept to the main script. The cash rate stays at 0.10%. The pace of asset purchases is to remain at $4 per week until at least mid-February and the yield target of 0.10% for the April 2024 Australian Gov’t bond remains in place. No interest rate hikes are expected until 2024. The easy monetary conditions remain.
However, the RBA indicated that the end was in sight. The setback to the economic expansion in Australia is expected to be only temporary. The RBA also said that ‘as vaccination rates increase further and restrictions are eased, the economy is expected to bounce back’. The bottom line is that the RBA is starting to look at picking themselves back up into next year. It would make sense to start seeing some of these large AUD short positions unwind. It is not that the AUD is bullish, but shorts look stretched now and the latest RBA meeting has confirmed that. The first major support level for AUDJPY is here on the weekly chart.