Aussie should remain supported until inflation shows a further decline – Commerzbank

The Reserve Bank of Australia (RBA) left interest rates unchanged. The Australian Dollar (AUD) edged a little higher on the news. Economists at Commerzbank analyze Aussie’s outlook.

RBA likely to gradually abandon its cautious stance only when inflation shows a further decline

The RBA left the hint of another rate hike in the statement. While most other central banks have dropped such a hint of additional tightening in the last two weeks, the RBA ‘cannot rule out a further increase in interest rates’.

For a possible rate cut, the RBA would likely want to gain greater confidence that inflation will return to target on a sustained basis. However, we will have to be patient until new figures ensure this confidence. The new monthly indicator is not due until the end of February, and the new quarterly figures are not due until the end of April, just ahead of the RBA's May meeting.

Only when the figures show a further decline is the RBA likely to gradually abandon its cautious stance. And until then, the Aussie should remain supported to a certain extent. For AUD/USD, therefore, it will probably depend on the US side for the time being.