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

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The Australian dollar bumper around after the RBA left rates unchanged at 4.10%; the last move by Philip Lowe was in line with market pricing and economist forecasts and the new RBA governor has hurdles ahead.


original-size.webpSource: Bloomberg


Daniel McCarthy | Strategist, | Publication date: Tuesday 05 September 2023

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


original-size.webpSource: DailyFX

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


original-size.webpSource: TradingView

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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