- AUD/USD continues to trade in the red as RBA’s minutes sound dovish.
- RBA members discussed additional easing to support jobs.
- The AU-US yield differential turns negative in a USD-positive manner.
AUD/USD remains on the offer at three-week lows, with the minutes of the Reserve Bank of Australia’s October meeting supporting the case for additional easing in November.
Released at 00:30 GMT, the minutes said:
- The Board discussed the case for additional monetary easing to support jobs and the overall economy.
- Members discussed the options of reducing the targets for the cash rate and the 3-year yield towards zero, without going negative, and buying government bonds further along the yield curve.
- With the economy opening up, members considered it reasonable to expect that further monetary easing would gain more traction than had been the case earlier.
- A further easing would help to reduce financial stability risks by strengthening the economy and private sector balance sheets, thereby lowering the number of non-performing loans.
- The Board agreed to put more emphasis on actual, not forecast, inflation in its decision-making.
- Members indicated that they would also like to see more than just progress towards full employment before considering an increase in the cash rate.
According to most analysts, the additional stimulus is likely to be announced during the Nov. 3 policy meeting. The central bank is expected to cut the interest rate to a new record low of 0.1% from the current 0.25% and possibly boost bond purchases in the five to 10-year window.
RBA Assistant Governor Kent noted early today that rates could move into negative territory in the case of further RBA easing. The Aussie-US 10-year yield differential has dropped into the negative territory for the first time since March.
As such, the path of least resistance for the Aussie dollar appears to be on the downside. AUD/USD is currently trading at 0.7056, having hit a low of 0.7046 a few minutes ago. That was the lowest level since Sept. 28. The S&P 500 futures are currently reporting 0.5% gains. As such, demand for the safe-haven US dollar may weaken, helping AUD/USD avoid deeper losses for some time.