Australian dollar sinks as RBA hold rates

• RBA holds rates at 4.1%
• AUD/USD declines 1%

The Australian dollar is down sharply lower on Tuesday. In the European session, AUD/USD is trading at 0.6295, down 1.05%.

RBA pauses rates for fourth straight time

Another Reserve Bank of Australia meeting, another pause. The RBA has clearly become comfortable with this pause phase, as policy makers held the benchmark rate at 4.10% on Tuesday for a fourth consecutive time. The move was no surprise, as future markets had priced in a pause at around 95%.

The meeting was the first under the helm of Michele Bullock, but the message from the RBA was much the same as it has been in recent months. Bullock reiterated that additional rate hikes were possible and that rate policy would be determined by inflation and other key economic reports. The RBA statement said that “the board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.”

Inflation rose unexpectedly in August, from 4.9% to 5.2%, but the board noted that much of the upswing was driven by volatile items such as energy prices. Still, inflation remains much higher than the target range of 2%-3%, and unless inflation falls significantly, the RBA may have to raise rates one more time before the end of the year. The third-quarter inflation report will be released later this month, which could a long way in determining what the RBA does at the November meeting.

The Australian dollar is having a miserable day, with losses of over 1%. The Aussie has dropped to an 11-month low and is being squeezed by a stronger US dollar, higher US Treasury yields, and the RBA pause.

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AUD/USD Technical

• AUD/USD tested support at 0.6345 earlier. The next support line is 0.6254
• There is resistance at 0.6423 and 0.6514

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