AUD/USD Cautious Despite the RBA’s Hold & Hawkish Stance

AUD/USD Analysis

The Reserve Bank of Australia kept rates at % and their twelve year highs for the seventh straight time and repeated the need for vigilance against inflation and a sufficiently restrictive stance ^[1]. Furthermore, Governor Bullock once again ruled out rate cuts in the near term during her post-meeting press conference ^[2]. The decision and messaging places the RBA at odds with the global trend of removing monetary restriction.

Consumer prices have come down substantially this year, but policymakers pre-empted further declines as temporary. They remain wary and don't expect inflation to return back to the 2-3% target for another two years. Furthermore, wages remain elevated despite moderation and the labor market is still tight.

However, with a struggling economy and global peers having delivered multiple cuts, this hawkish stance may become increasingly hard to sustain. There was already some softening, as Governor Bullock said that a rate hike was not discussed this time around. This was the first time since March that such action was not contemplated by the Board.

AUD/USD rose to new 2024 highs due to the RBA's commitment to monetary restriction, just as the US Dollar is harmed by the Fed's aggressive pivot. The US central bank delivered a jumbo rate cut of 50 bps last week, while pointing to an aggressive easing path ahead ^[3]. The monetary policy differential favors the pair, which has the chance to extend its recovery past the 0.6900 handle.

However AUD/USD falters ahead of that handle and erases initial gains, weighed by the lack of discussion of a hike by RBA officials. Furthermore, the RSI has not followed price action higher, creating scope for a pullback towards the EMA200 (black line). Daily closes below it would pause the bullish bias, but that is hard to justify under current policy dynamics.