Reserve Bank of Australia Hits the Pause Button at 3.60%

It was a busy morning for the Australian markets, with the RBA in focus. In line with market expectations, the RBA left interest rates unchanged at 3.6% this morning. The markets had previously priced in a 25-basis point interest rate hike before shifting bets to the RBA hitting the pause button.

Salient points from the RBA Rate Statement included,

• The Board recognizes that monetary policy operates with a lag and that the full effect of interest rates rising by 3.5 percentage points is yet to be felt.
• Global inflation remains very high with the global economic outlook subdued.
• Recent banking system problems may lead to tighter financial conditions, another headwind.
• The Australian banking system is strong, well-capitalized, and highly liquid.
• Economic indicators suggest that inflation has peaked in Australia, with the RBA expecting inflation to moderate in the months ahead.
• The central forecast is for inflation to fall in 2023 and 2024 to around 3% in mid-2025.
• Growth has slowed and will likely remain below trend over the next couple of years.
• The labor market remains very tight, with the unemployment rate close to a 50-year low.
• The Board will pay close attention to wages as wage growth continues rising because of the tight labor market and higher inflation.
• In assessing when and how much further interest rates need to increase, the Board will be paying close attention to,
  • Developments in the global economy.
  • Trends in household spending.
  • Inflation outlook.
  • The labor market.
• The Board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target.

AUD/USD Reaction to the RBA

Before the RBA monetary policy decision, the AUD/USD rose to a pre-RBA session high of $0.67933 before falling to a low of $0.67732.

However, in response to the RBA hold, the AUD/USD rose to a high of $0.67882 before falling to a low of $0.67583.

This morning, the Aussie was down 0.34% to $0.67620.

Next Up

Later today, US economic indicators will also provide direction. JOLTs job openings are in focus ahead of ADP nonfarm employment change numbers on Wednesday and the US Jobs Report on Friday. Factory orders are also out but should have a limited impact on the Aussie, barring a marked decline.