The Australian dollar showed little movement on Tuesday after the Reserve Bank of Australia (RBA) maintained a cautious stance against inflation.
The RBA concluded its June policy meeting with rates held at 4.35%, emphasising that household consumption was stronger than initially reported and monthly consumer price figures had not improved. This stance suggested a potential for future rate hikes, although markets largely dismissed this likelihood.
The RBA’s statement had a hawkish tone, indicating that the Board considered a rate hike, similar to discussions in April. However, the Board set a high threshold for an inflation forecast surprise that could justify another rate increase. The next move is likely to be a rate cut, possibly in early 2025.
Current market sentiment reflects a reduced likelihood of a rate hike, given the economy’s near stagnation in the first quarter and slowed wage growth.
Futures data now imply a 56% chance of a rate cut in December, down from 64% before the announcement. A first quarter-point easing is anticipated by April, with only 52 basis points of cuts expected by the end of 2025.
Picture: Aussie on the rise as seen on the VT Markets app.
The Australian dollar held steady at $0.6610 after recovering from an overnight low of $0.6586. Key support levels are at $0.6576, while resistance is found at last week’s high of $0.6705. In contrast, the New Zealand dollar eased slightly to $0.6118, having dipped to $0.6105 overnight. Resistance for the Kiwi lies at the recent five-month high of $0.6222.
Core inflation in Australia remains stubbornly high at an annual rate of 4.0%. A high reading this quarter could increase the risk of a rate rise at the RBA’s August meeting. However, government rebates on energy bills are expected to reduce headline consumer price inflation from 3.6% to much lower levels in the second half of the year.
Annual CPI could fall to just 2.7% in the third quarter, significantly below the RBA’s forecast of 3.8% and back within its long-term target range of 2-3%. Such an outcome would make it challenging for the RBA to justify a rate hike, even if core inflation remains high.
Also read: Aussie and Kiwi hit multi-month highs on Euro
The market continues to monitor these developments closely, with the Australian dollar’s stability hinging on upcoming economic data and further statements from the RBA. Investors should remain cautious as these factors could heavily influence market dynamics in the near future.
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