Intraday Market Thoughts

RBA & Boris Johnson Reversal from Covid

by Adam Button
Sep 7, 2021 14:12

Aussie fell across the board after the RBA confirmed what many had suspected--Delaying the taper on debt purchases into February 2022 instead of November of this year as a results of. GBP extends selloff after PM Johnson announcing hikes on payroll and dividends taxes to finance the NHS with a £36 bln boost. Metals and Nasdaq futures are down as bond yields rally on the way back from holiday. The US dollar is up against all major 7 currencies (AUD, CAD, GBP, NZD, JPY, EUR, CHF), with CHF and EUR the least weak of lot. 

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RBA & Boris Johnson Reversal from Covid - Us 10 Yr Sep 7 2021 (Chart 1)

The best-laid plans in all walks of life have been derailed by covid in the past 18 months. This is the case for Boris Johnson's tax policy and the RBA's monetary policy. The latter had explicitly outlined a taper, but lockdowns with no end are reshaping the path of the economy along with the same bottlenecks that are weighing everywhere.

RBA QE is running at $5 billion per week and a month ago there was a strong consensus they would lower that to $4 billion. 10 of 16 economists told Bloomberg they were expecting a delay in the taper. There was uncertainty after stronger than expected employment figures, but persistent warnings of an economic slowdown owing to the lockdowns took priority. Compounding the downside risk is the rapid recent run-up and potential for consolidation.

Longs in EURGBP, USDCAD and shorts in AUDJPY appear to be sensibe trading ideas.  


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