The Reserve Bank of Australia has once again swung into action as it tries to curtail the fallout triggered by the Coronavirus pandemic. As part of quantitative easing measures launched on March 20, 2020, the RBA has confirmed the purchase of $3 billion in sovereign government bonds. The purchase has since brought to An$18 billion the total amount in government securities that the central bank has bought.
Government Bonds Purchase
The central bank has also confirmed that it is open to buying an unlimited amount of government bonds in the secondary market. The buying spree is part of the regulator monetary policy that seeks to Keep the three-year yields at about 0.25%. Likewise, the regulator hopes the buying spree will trigger some sought of stability in an economy that is staring at a recession in nearly three decades.
By purchasing sovereign government bonds in numbers, the RBA is set to become the default holder of government bonds. Analysts are already estimating a $100 million increase in new government bonds in the hands of the RBA. David Plank, an analyst at ANZ, believes RBA could end up owning 50% of the new bond supply by purchasing from the secondary market rather than auctions.
Likewise, the number of government bond issuance is poised to surge as the federal budget continues to deteriorate from a balance last year to a deficit. Analysts are already projecting between A$30 billion and A$50 billion in new sovereign bond issuance before the end of June as part of RBA fiscal stimulus program.
Australian Dollar rallies
In the wake of the bonds purchasing spree, the Australian dollar has continued to map a recovery against a basket of other currencies. The AUD has since strengthened against the U.S dollar, which has come under immense pressure in recent days amidst concerns that the U.S is struggling to contain the Coronavirus pandemic.
The spot has since retaken the $0.600 handle buoyed by an improvement in risk sentiment. The stimulus packages rolled up by the RBA has gone a long way in strengthening the AUD. It now appears the Australian dollar is headed to the 0.61 level.