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The Australian and New Zealand Dollars are trading higher on Tuesday, helped by a more accommodative Fed, which is expected to keep interest rates at or near zero for a long time, while making the U.S. Dollar a less-attractive investment. Traders are also responding to domestic and other economic data and new guidance from the Reserve Bank of Australia (RBA).
At 07:58 GMT, the AUD/USD is trading .7408, up 0.0030 or +0.41% and the NZD/USD is at .6774, up 0.0039 or +0.58%.
The U.S. Dollar dropped toward multi-year lows against most major currencies on Tuesday as investors stepped up bets the Federal Reserve’s new policy framework meant U.S. rates would stay lower than rates in other countries.
The Fed’s historic switch last week to focusing more on average inflation and higher employment means it has leeway to keep benchmark rates lower for longer, which has encouraged dollar bears to sell the currency.
The RBA kept policy unchanged and expanded its cheap funding for banks. The RBA left its cash rate at a record low of 0.25% on Tuesday, but surprised by expanding a program of cheap funding for banks and extending it out to the middle of 2021.
Australia Central Bank Holds Rates, Expands Bank Funding Scheme
Australia’s central bank on Tuesday unexpectedly boosted the size and term for cheap funding to lenders as the economy looked set to post to its worst contraction since the Great Depression due to the coronavirus pandemic.
The Reserve Bank of Australia (RBA) kept rates at 0.25%, in a widely expected move, and said it would increase the size of its term funding facility to around A$200 billion ($148.08 billion) at a fixed rate of 25 basis points for three years.
Banks will be able to draw up on this extra funding up until the end of June 2021.
“This will keep interest rates low for borrowers and support the provision of credit by providing (banks) greater confidence about continued access to low-cost funding,” RBA Governor Philip Lowe said in a post-meeting statement.
The RBA also hinted at further measures, while reiterating policy rates will remain low for a long time to come.
“The Board will maintain highly accommodative settings as long as is required and continues to consider how further monetary measures could support the recovery,” he said.
Short-Term Outlook
The Australian and New Zealand Dollars continue to scale multi-year highs as the prospect of bottomless U.S. policy stimulus fueled demand for reflationary trades, overshadowing dovish turns by Australia’s and New Zealand central banks. The RBA continues to provide monetary measures to support the recovery, while the RBNZ has already hinted at the possibility of negative interest rates.