Where Is AUDUSD Headed After the RBA?

In July, the AUD/USD exchange rate fell 3 cents, from 0.68 to 0.65, but stabilized at this level for about a week. Yesterday, as risk sentiment deteriorated, the decline continued; however, AUD/USD rebounded and ended the day almost unchanged at 0.65. It was notable that the RBA held its monthly meeting early today following a weaker-than-expected June Australian CPI report.

Initially, strong inflation data and hawkish expectations for the RBA had bolstered the AUD. However, these high expectations were dashed when the Australian Q2 CPI figure came in lower than anticipated. Additionally, the Australian dollar has been negatively affected by the downturn in the Chinese economy this year and the prevailing negative risk sentiment in global markets. Thus, the RBA meeting today took place amidst a challenging environment for the Australian economy and increasing volatility in AUD/USD .

AUD/USD Chart H4 – MAs Continue to Act As Resistance

The RBA held it’s meeting last night, leaving rates unchanged as expected. The decision to maintain the cash rate at 4.35% reflects ongoing concerns about persistent inflation and weak economic activity, both domestically and internationally. The bank remains cautious and is prepared to adjust its policy as needed to ensure inflation returns to the target range.

RBA Monetary Policy Decision

• The Reserve Bank of Australia (RBA) has decided to leave the cash rate unchanged at 4.35%, as expected.
• The prior cash rate was also 4.35%.

Key Points from the RBA’s Statement:

• Inflation:

  • Remains above target and is proving persistent.
  • In underlying terms, inflation remains too high.
  • The process of returning inflation to target has been slow and bumpy.
  • High unit labour costs and persistent inflation suggest upside risks to prices.

• Wages:

  • Wages growth appears to have peaked but is still above the level that can be sustained given trend productivity growth.

• Economic Activity:

  • Momentum in economic activity has been weak, as evidenced by slow growth in GDP.
  • There remains a high level of uncertainty about the overseas outlook.

• Policy Outlook:

  • It will be some time before inflation is sustainably within the target range.
  • Policy will need to be sufficiently restrictive until there is confidence that inflation is moving sustainably towards the target range.
  • The RBA is not ruling anything in or out regarding next policy steps.

“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out.”

Today, they changed that up to:

“Data have reinforced the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out. Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range.”

The language mainly reinforces their stance in keeping the cash rate unchanged. But it also means that we aren’t likely to expect a move in September as well. That said, it’s not like markets were pricing in anything for next month anyway. The odds of the RBA leaving policy as it is in September are at ~88% currently.

AUD/USD Live Chart