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AUD Recoils, RBA Reaffirms Easy Policy, Ramps up Bond-Buying

SYDNEY, March 2 (Reuters) - The Australian dollar eased on Tuesday as the central bank sought to calm nervous bond markets by recommitting a pledge to keep buying bonds, and reassuring that faster growth will not lead to an early tightening cycle.

The Aussie was 0.12% lower $0.7760 at midday on Tuesday, and down 3% from the $0.8007 three-year high it reached last week, after the Reserve Bank of Australia (RBA) left interest rates at historic lows of 01% at its monthly policy meeting.

“The current monetary policy settings are continuing to help the economy by keeping financing costs very low, contributing to a lower exchange rate than otherwise, and supporting the supply of credit and household and business balance sheets,” the RBA said in its statement.

” remains committed to maintaining highly supportive monetary conditions until its goals are achieved...(and) will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.”

Australian 10-year bond yields, which had spiked to a high of 1.97% on Friday on bets of rate hikes as early as next year before pulling back on Monday, were two basis points higher at 1.69%.

Futures on 3-year bonds were steady at 99.725 while 10-year bond futures were two ticks lower to 98.31. Last week’s dramatic selloff in bonds, which sent three-year yields as high as 0.188% and threatened to shakeup the RBA’s target of 0.1%, prompted an aggressive response from the central bank. It made a A$3 billion ($2.33 billion) bond buying offer last Friday, and followed up with another A$4 billion in Monday.

While economic conditions have improved in Australia, helped by a more successful response against the COVID-19 pandemic compared to its peers overseas, policymakers worry the speed of yield rises could derail the recovery.

“The Bank remains committed to the 3-year yield target and recently purchased bonds to support the target and will continue to do so as necessary,” said RBA Governor Philip Lowe.

In New Zealand, which has also successfully controlled the spread of coronavirus in a boost to its economy, authorities have been forced to calm market nerves about policy intentions.

The kiwi dollar was also 0.18% lower at $0.7250 after New Zealand’s central bank said it was in no rush to tighten monetary policy in an attempt to temper market speculation it might move to tighten interest rates sooner than expected.

Yields on NZ 10-year bonds were little changed on the day at 1.77%. That is off from its Friday peak of 2.04% and far above the 1.01% held at the start of this year.

(Editing by Shri Navaratnam)

Source: Reuters

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