Weekly Market Update (09 August 2021) – RBA to proceed with QE tapering in September

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ByLCMS Traders FX Analysis Team

 AUG 9, 2021

(1) The Reserve Bank of Australia (RBA) concluded their monetary policy meeting last week by holding policy unchanged. The central bank also announced that they will proceed with their plan of tapering quantitative easing (QE) in early September when the current round of QE ends. In his testimony three days later, RBA Governor Lowe explained that the central bank did consider delaying QE tapering but decided to proceed on with the plan as the committee members are expecting growth in 2022 to be stronger, hence the recent slowdown in economic growth will not affect the tapering plan. The central bank also highlighted that it will not increase interest rate until inflation is sustainably within the 2-3% target range. In the released economic projections, the RBA revised its forecasts positively.

(2) Just like its Australian counterpart, the Bank of England (BoE) held its monetary policy unchanged during their meeting. However, the BoE did not carry out any QE tapering as all but one committee member voted for no change in QE. In the released economic projections, the central bank also revised their forecasts positively. In regard to the ending of the UK furlough scheme in September, the BoE no longer expect unemployment to rise as the number of furloughed jobs declined recently. The challenge now will be on the filling of job vacancies by employers. The central bank also highlighted that it will start to reduce bond holdings once the interest rate hits 0.5% and will be actively selling down when rate reaches at least 1%.

(3) Last Friday, the U.S. Bureau of Labor Statistics reported 943,000 jobs being added into the economy in July, surpassing the market expectation of 870,000 jobs. The number of jobs being added in June was also revised upward from the initial 850,000 to 938,000. Unemployment rate for July has also fallen to 5.4% from the previous 5.9%. However, as the jobs data was collected prior to the surge in cases across the U.S., it is uncertain if such good figures are sustainable for the upcoming months.