RBA Providing USD Via Repos To Cool FX Swaps Market

• Published on
• 26 Mar 2020, 09:10 AM

By Sophia Rodrigues

The Reserve Bank of Australia is providing US dollars in the local market via repurchase auction, a move aimed mainly at addressing dysfunction in the swaps market but likely also aimed at reducing  volatility in the spot market.

On Wednesday, the RBA announced it is offering US$10 billion via 84-day repos. The repo auction will take place Thursday and is against Australian-dollar denominated securities.

The US dollars are being offered from the temporary swap line that the RBA last week established with the Federal Reserve for US dollar liquidity for US$60 billion.

Such a facility was previously created during the global financial crisis and the RBA, in turn, offered them via repos locally from September 2008 to May 2009, for periods ranging from 21 days to 95 days.

For Thursday’s auction the minimum bid rate is set at 0.25% above the US dollar overnight index swap rate for the corresponding maturity.

Demand from the big local banks isn’t expected for these swaps because they already have a lot of US dollar liquidity. But it is likely some of the banks’ clients might have a need for US dollars.

Demand is expected from Japanese banks.

Back in 2008, the first two auctions were fully sold but demand tapered for the subsequent ones.  The auction on January 12, 2009 and the final one on May 20, 2009 were fully unsold.

The Australian dollar has witnessed a lot of volatility in recent weeks. From $0.6524 at the end of February, the exchange rate fell to $0.5571 on March 19, before rebounding partly to $0.6007 on Wednesday, according to closing rates published by RBA.

--Contact: sophia@centralbankintel.com