Australian dollar weakens as RBA says no rate hikes planned

The Australian dollar has lost ground on Tuesday. AUD/USD has dropped by 0.31%, trading at 0.6604 in the European session at the time of writing.

RBA stays pat but wary of inflation

There was no surprise as the Reserve Bank of Australia maintained the cash rate at 4.35% for a sixth straight time. The RBA statement noted that inflation remained high and was falling more slowly than expected, adding that underlying inflation remained higher in large part due to services inflation.

RBA Governor Bullock said that inflation risks were tilted towards the upside and was quite candid about the possibility of raising rates, saying she hoped that the economy would not have to “stomach higher rates”.

Bullock said there was discussion at the meeting of raising rates but the Board decided that monetary policy was restrictive enough to bring inflation back down to the 2-3% target band by late 2025. Bullock said a rate hike can’t be ruled out, but doesn’t seem necessary. The markets may have been expecting a more hawkish message regarding rate hikes and the Australian dollar fell as much as 0.5% after the announcement.

The Federal Reserve has signaled that inflation remains too high for a rate cut just yet and on Monday two Fed members said that the Fed could afford to be patient. Richmond Fed President Barkin said that first-quarter inflation data was “disappointing” but he remained hopeful that the current restrictive policy would dampen demand and bring inflation back to the target of 2%. New York Fed President Williams said that policy was in “a very good place” and that a rate cut would depend on the data.

AUD/USD Technical

  • AUD/USD faces resistance at 0.6683 and 0.6756
  • 0.6574 and 0.6501 are providing support

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Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental and macroeconomic analysis, Kenny Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in major online financial publications including, Seeking Alpha and FXStreet. Kenny has been a MarketPulse contributor since 2012.