#OPINIONLEADER#

ByLCMS Traders FX Analysis Team

 SEP 13, 2021

(1) The Reserve Bank of Australia (RBA) kicked off last week with the first of the three monetary policy meetings. The central bank carried out its quantitative easing (QE) tapering plan as promised, reducing bond purchases from the previous rate of A$5 billion per week to A$4 billion per week. Furthermore, the RBA surprised the market by extending the current round of QE from the end date of early November 2021 to mid-February 2022, resulting in a dovish tapering. The central bank explained that its decision “reflects the delay in the economic recovery and the increased uncertainty associated with the Delta outbreak”. As a result, the Australian dollar weakened across the board.

(2) The Bank of Canada (BoC) held its monetary policy unchanged this month, keeping interest rate at 0.25% and proceeding with QE at a rate of C$2 billion per week. The central bank highlighted that the softer quarter 2 GDP data “largely reflects a contraction in exports, due in part to supply chain disruptions, especially in the auto sector”. Nonetheless, the BoC continues to expect the Canadian economy to strengthen during the second half of 2021. The central bank also reiterated that interest rate will be held at current level until the 2% inflation target is sustainably achieved, which BoC projects to be in the second half of 2022.

(3) The European Central Bank (ECB) held interest rate and the size of its QE unchanged during their meeting last Thursday. However, the central bank reduced the pace of its bond purchase under the Pandemic Emergency Purchase Programme (PEPP). According to ECB President Christine Lagarde during the press conference, the central bank’s action is not considered a tapering, but a recalibration. She went on to explain that this decision “is to calibrate the pace of our purchases in order to deliver on our goal of favourable financing conditions”. The central bank also revised their projections for inflation upwards for 2021, 2022 and 2023. As for the plan of PEPP when it ends next March, Lagarde said that discussions on this matter will take place during December’s meeting.