Market update: Australian dollar languished near lows after RBA pauses again

RBA keeps cash rate steady

The Australian dollar struggled to gain traction on Tuesday after the RBA left its cash rate at 4.10% as widely anticipated by the interest rate market and economists.

The Aussie had been battling going into the decision on slight risk aversion sentiment with equity markets seeing a soft day. The S&P/ASX 200 slid slightly lower from the open but steadied in the afternoon session and was little changed after the RBAs announcement.

Governor Philip Lowe's final decision

The accompanying statement on the monetary policy decision by Governor Philip Lowe cited notable risks around services inflation, the uncertainty around the laggard effects of tighter policy, household consumption and the economic outlook for China given the problems in its property sector.

The statement noted, “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will continue to depend upon the data and the evolving assessment of risks.”

This was Mr Lowe’s last decision as Governor, and he will hand over the reins in a fortnight to Michelle Bullock.

Ms Bullock has been the Deputy Governor of the bank since April 2022 and has been with the institution since 1985. She has a reputation as a leading economist in her own right.

The appointment is mostly viewed as a steady transfer of leadership at a critical time for monetary policy at the RBA and her recent remarks point toward a similar approach to that of her predecessors.

AUD/USD reaction to monetary policy

Going into today’s monetary policy decision, AUD/USD had been slipping lower as the US dollar strengthened across the board, despite a holiday there overnight.

Perhaps undermining the Aussie, headline current account figures missed estimates earlier today. However, on closer inspection, the statistics could be seen as neutral, given the upward revisions to the prior reading.

In addition, net exports as a percentage of GDP were robust through the second quarter. This points towards another stellar trade surplus that will be released on Thursday.

Australian data today

China's struggles and Australia's GDP projections

Elsewhere in Asia today, China’s attempts to reignite its economy continue to struggle to get off the ground with the Caixin services PMI missing estimates today, further highlighting the RBA’s concerns.

It came in at 51.8 for June, rather than the 53.5 anticipated and 54.1 previously. The composite PMI was 51.7 against 51.9 prior.

On Wednesday, 2Q Australian quarter-on-quarter GDP is forecast to be 0.3% against 0.2% previously. Annual GDP to the end of July is anticipated to be 1.8% against the prior read of 2.3% as the base effect kicks in.

AUD/USD one minute chart price reaction to RBA hike

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