As expected, the Reserve Bank of Australia (RBA) cut the cash rate, the 3-year YCC target, and the Term Funding Facility rate by 15bp to 0.10%.

However, a QE program of AUD100 billion is a surprise. AUDUSD should struggle to sell off below 0.70 ahead of the US election materially.

If a ‘blue wave’ fails to materialise – which should be positive for currencies sensitive to industrial metal prices like the AUD – the currency’s domestic headwinds should start to weigh.

I think the US elections Blue wave stimulus supplants central bank policy over the short term.

The central bank is open to expanding the program further if the economy, specifically the labour market, does not recover sufficiently. Of interest, it sees the unemployment rate remaining high, but to peak at a little below 8% vs. 10% previously.

The RBA also provides explicit forward guidance, noting that “it is not expecting to increase the cash rate for at least three years.”

Details of the RBA’s measures:

• A reduction in the cash rate target to 0.1 per cent

• A reduction in the target for the yield on the 3-year Australian Government bond to around 0.1 per cent

• A reduction in the interest rate on new drawings under the Term Funding Facility to 0.1 per cent

• A reduction in the interest rate on Exchange Settlement balances to zero

• The purchase of $100 billion of government bonds of maturities of around 5 to 10 years over the next
six months.

RBA Decision analysis from Stephen Innes, Chief Global Market Strategist at Axi