Where is the AUD Left After the RBA Meeting Last Night?

It’s noted that there is a strong positive seasonal trend in the AUD in April, and on the first day of the month, this trend was reflected in the markets. AUD/USD climbed around 130 pips to 0.6790, but but stalled in the afternoon due to fluctuations in risk sentiment and expectations for a dovish RBA hike. A close above 0.6783 would would indicate a rejection of the recent downward trend technically, but the fundamentals are more important now.

The Reserve Bank of Australia (RBA) announced its decision early this morning. While the consensus was for no change from the current 3.60% cash target, there is a 13% chance of a surprise rate hike, which could result in greater upside potential than downside risk surrounding the central bank decision.

In the larger picture, the AUD is expected to benefit from the global economic recovery, and this trend should continue as concerns over the banking sector subside and central banks slow down or stop rate hikes. However, China remains a wildcard factor, as the country continues to reopen following the COVID-19 pandemic. Yesterday’s manufacturing PMI from China was disappointing at 50.0, down from 51.6 previously, and on Thursday, we will get the Caixin services PMI.

The RBA April 2023 Monetary Policy Decision

• RBA leaves cash rate unchanged at 3.60%, as expected
• Prior cash rate was 3.60%
• Monetary policy operates with a lag
• The full effect of this substantial increase in interest rates is yet to be felt
• The Australian banking system is strong, well capitalised and highly liquid
• A range of information suggests that inflation has peaked in Australia
• The labour market remains very tight
• As economic growth slows, unemployment is expected to increase
• Expects that some further tightening may well be needed to ensure that inflation returns to target
• The decision to hold rates gives more time to assess the state of the economy and the outlook
• Full statement

After a bit of a tiny whipsaw, the aussie is now tracking lower with AUD/USD dropping from 0.6780 to 0.6760 as the RBA leaves the cash rate unchanged this month. They do leave the door open for further tightening in the months ahead but the language on that also suggests that even if it does come, perhaps there might just be one more rate hike only.

The change is that they now emphasise that there is only “some further tightening” that may well be needed instead of previously saying that “further tightening” will be needed. It’s subtle but it is a change.

AUD/USD