The Reserve Bank of Australia has paused rate hikes for a second month, surprising some analysts.
AUDUSD – Daily Chart
AUDUSD made a sharp reversal on the day as traders realised that the bank is more dovish than the Fed. The 0.66 level supports the pair, with 0.6458 being a more significant target below.
The RBA left its benchmark rate unchanged at 4.1%, the highest since 2012. Investors expected a second consecutive pause, but some analysts were convinced of another increase.
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon the data and the evolving assessment of risks,” RBA Governor RBA Philip Lowe said in a statement.
David Bassanese, chief economist of Betashares, said the RBA should “take heart from the signs of easing in core/service sector inflation globally. Barring an upward inflation surprise, there’s a good chance we’ve seen the last rate increase this cycle,” he added.
Australia’s economy has been showing mixed signals, with retail spending in June lower in real terms and June quarter inflation figures weaker than expected. However, employers continued to hire staff with no sign of significant wage increases.
While Australia’s economy has been slowing down, forecasts from the Treasury and the RBA had GDP growth remaining positive this year. Today’s decision also factored in some revised forecasts that the central bank will publish on Friday.
The latest decision to leave the cash rate unchanged will also give the RBA more time to assess whether wage increases are gaining momentum.
The RBA’s move may provide some downside opportunity for AUDUSD trades, but the current level of support needs to be breached.
