AUD/USD and NZD/USD Fundamental Daily Forecast – Minutes Indicate RBA Likely to End QE in February 2022

The Australian Dollar is edging higher early Tuesday after the Reserve Bank of Australia (RBA) expressed optimism the spread of the Omicron variant will not derail an ongoing economic recovery, giving it the option to end quantitative easing early should the run of activity data stay upbeat.

Investors read the news as friendly to the Australian Dollar because ending stimulus is considered the first step toward eventually raising interest rates.

At 02:00 GMT, the AUD/USD is trading .7119, up 0.0009 or +0.13%. On Monday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $70.52, down $0.18 or -0.26%.

RBA Minutes Overview

Minutes of the RBA’s December 7 policy meeting showed its Board remained committed to keeping interest rates at a super-low 0.1%, but was considering how and when to wind up its A$4 billion ($2.84 billion) in weekly bond buying given the economic pick up, Reuters reported.

“Members observed that the Australian economy was rapidly recovering after the interruption to growth caused by the outbreak of the Delta variant,” the minutes released on Tuesday showed.

“The emergence of the Omicron variant was a new source of uncertainty, but it was not expected to derail the recovery.”

RBA has Options

There are no RBA meetings scheduled until February 2022, which gives policymakers plenty of time to observe how the impact of Omicron on the economy unfolds. This may actually be good news since some are saying the variant will peak quickly without causing substantially slowing the economic recovery.

With this new knowledge in hand, RBA policymakers could consider at the next Board meeting in February to extend bond buying to May at the same or reduced amount, or ending it altogether in February.

The decision, of course, would depend on how the economy fared, with data on jobs, inflation and spending particularly important.

Daily Forecast

The early price action suggests traders are becoming convinced the RBA will chose to end its bond purchases in February. They cite the recently released better-than-expected employment figures, especially the unemployment rate at 4.6% as one reason to expect this move.

Meanwhile, high inflation needs to be addressed and the Fed is due to end its tapering by March 2022.

The wildcard is Omicron. Coronavirus cases are rising, but so far the government has resisted pressure to re-instate social restrictions, relying instead on urging people to get booster shots of the vaccine.