Post-RBA meeting and Aud-Chf

I would have liked to write this article, and publish this analysis, a couple of days ago but unfortunately, my numerous commitments did not allow me to do so. I had finished my previous analysis on the Australian dollar with my bearish view, not only of Aud but also of Aud-Chf (you can read it here https://tradingwithdavid.com/en/a-bearish-winter-for-the-australian-dollar/). I analyse the currency pair today but first, let's briefly see what came out of last Wednesday's Reserve Bank of Australia meeting.

While I had described Powell as cautiously optimistic in his Press Conference, Governor Lowe has plenty of optimism to spare. He practically snubbed the increase in Covid-19 new variant (Delta) infections and the lockdown, convinced that it will be short-lived and with effects that will be felt but only in the short term, "The recent outbreaks of the virus and lockdowns will affect the strength of the recovery in the near term. But Australia's experience has been that once an outbreak is contained and restrictions are eased, the economy bounces back quickly."

Although, "more Australians have a job than they did before the pandemic," wages do not have the same growth, "There have been increased reports of labour shortages in parts of the country and a step-up in wage increases for some occupations. Even so, wage increases for most Australians are still modest and the expected pick-up in overall wages growth is still forecast to be only gradual." In practice, more people are being hired but wages are lower on average. Probably that surprising 5.1% unemployment rate in June (from 5.5% in May) is also explained in this way.

Then he talked about the 3-year bond purchases, the most interesting part. The 3-year yield target was introduced in March last year during an exceptional period. It has served its purpose of lowering funding costs in Australia. Now, 16 months on, the maturity date for the 3-year bond has moved to April 2024 and it will soon move to November 2024.

the Board has decided to maintain the April 2024 bond as the target bond, rather than extend the horizon to the bond with a maturity date of November 2024. This means that, as time passes, the maturity of the yield target will naturally decline. The Board remains committed to the target of 10 basis points, which is the same rate as the target for the cash rate. Then purchases, which will fall from $5 billion a week to $4 billion.

The result of this has been a drop in the 3-year yield maturing in November 2024 from 0.425 (Tuesday's close) to 0.351 at the moment. This also led the Australian dollar to fall. The dollar that behind Lowe's enthusiasm, "Let me conclude. The Australian economy has bounced back earlier and stronger than expected. More Australians have jobs today than they did before the pandemic. This is good news. Even so, we are still well short of our goals of full employment and inflation consistent with the target. The RBA is committed to achieving these goals. Today's decisions maintain the supportive monetary conditions that are needed to do this" had initially sketched out a bullish movement but then, as the hours passed it deflated until this morning (in Europe) with Aud falling sharply.

I come to Aud-Chf. I am sorry again; I could not write this article earlier. Aud-Chf for me was strongly bearish, the reasons were multiple. The too high level of the Aussie dollar (which Lowe didn't mention at all) which is not sustainable for the Australian economy, the lockdown which makes me less optimistic than the RBA Governor, a very slow vaccination campaign, the purchases on Australian bonds. Add to this, a very strong Chf due to a demand for safe-haven assets and selling of risk-off ones (probably summer-related). Below you can see the Aud-Chf chart.