AUD/USD rises after RBA holds rates

The Australian dollar continues to show strong movement and is down sharply on Tuesday. In the European session, AUD/USD is trading at 0.6400, down 0.61% at the time of writing.

RBA maintains cash rate

There was no surprise as the Reserve Bank of Australia stayed on the sidelines and maintained the cash rate at 4.35%. The central bank has held rates since November 2023 as it continues its stance of “higher for longer”.

The rate statement was slightly on the dovish side, noting that the board had gained “some confidence” that inflation is moving sustainably towards target”. Notably, the statement omitted a line from previous meetings that the RBA was not “ruling anything in or out”, which the market had viewed as a signal that rate hikes were still on the table.

The statement reiterated that underlying inflation remained too high at around 3.5%, above the 2.5% midpoint of the inflation target. The upside risk of inflation remained and there was a “high level of uncertainty” about the global economic outlook.

The RBA hasn’t provided any insights as to a timeline for a initial rate cut but the market has boosted the odds of a February rate cut. Prior to today’s rate meeting, the market had circled May as the likely start date for the easing cycle and the shift to February has pushed the Australian dollar lower.

China’s government said on Monday that it would loosen its monetary policy and take steps to boost the sputtering economy. The government is shifting towards a more accommodative policy which could include cutting interest rates. This would likely boost domestic demand which would be good news for Australia’s critical export sector.

AUD/USD technical

• AUD/USD has pushed below support at 0.64430 and is testing support at 0.6390 . Below, there is support at 0.6339

• 0.6481 and 0.6521 are the next resistance lines