The Australian dollar is showing limited movement on Tuesday, after the Reserve Bank of Australia held interest rates. In the European session, AUD/USD is trading at 0.6493, up 0.61%.
RBA Maintains Rates
The RBA left interest rates unchanged at 4.35% at its first meeting of 2024. The central bank raised rates by a quarter-point in November but has been reluctant to lower rates, even with inflation continuing to decline. The decision was widely expected and the Australian dollar shrugged, gaining just 0.2% after the meeting.
The RBA statement acknowledged that inflation has been falling but remains too high and that “the board expects that it will be some time before inflation is sustainably in the target range”. The RBA released an updated inflation forecast, which projected that inflation would fall back to the target range of 2 to 3 percent in 2025 but wouldn’t fall to the midpoint of the range until 2026.
The message from the RBA was that inflation remains still elevated and sticky and it is still early to discuss rate cuts. The statement pushed back against rate cut expectations, saying that, “a further increase in interest rates cannot be ruled out”. The RBA is unlikely to raise rates unless inflation suddenly reverses direction and climbs higher, but the central bank remains hawkish in its rate stance and cautious about inflation. The statement noted that members were concerned about the slowdown in China’s economy and conflicts in Ukraine and the Middle East. Members were also worried about the lag in the effect of monetary policy and household consumption.
Governor Bullock used her press conference to reiterate that the RBA’s number one priority was lowering inflation, and that meant keeping rates in restrictive territory. Bullock said she sympathized with mortgage holders who were looking for a rate cut but inflation had to be driven down first and only then could the central bank start to lower rates.
AUD/USD Technical
- 0.6546 and 0.6590 are the next resistance lines
- 0.6468 and 0.6424 and providing support
