Australian Dollar dips after RBA's on-hold decision as traders eye post-meeting presser
- AUD/USD edges lower after the RBA left rates unchanged at the end of the August meeting.
- A modest USD uptick further weighs on the pair, though the RBA’s hawkish tilt limits losses.
- Traders also seem hesitant to place aggressive directional bets ahead of US inflation figures.
The AUD/USD pair slides below mid-0.7000s after the Reserve Bank of Australia (RBA) announced its policy decision, though it lacks follow-through.
As was widely expected, the RBA decided to leave the Official Cash Rate (OCR) unchanged for the second consecutive meeting at the end of the August policy meeting. In the accompanying policy statement, the central bank noted that the impact of the Middle East conflict on inflation has, so far, been less than expected. This, in turn, disappointed Aussie bulls, which, along with a modest US Dollar (USD) uptick, exerts some pressure on the AUD/USD pair.
The RBA, however, said that inflation is not expected to return to around the midpoint of the target range until late 2027 and that there are also upside risks to this projection. The central bank added that it will continue to do what is necessary to bring inflation back to target, including increasing the cash rate target further. This holds back traders from placing bullish bets on the Australian Dollar (AUD) and acts as a tailwind for the AUD/USD pair ahead of the post-meeting presser.
Traders also seem hesitant and opt to wait for the release of the latest US inflation figures – the Consumer Price Index (CPI) and the Producer Price Index (PPI) on Wednesday and Thursday, respectively. Apart from this, further developments surrounding the Middle East crisis will influence the USD and provide some impetus to the AUD/USD pair. Nevertheless, spot prices remain well within striking distance of the highest level since June 16, touched last Friday.
AUD/USD daily chart
Technical Analysis
The AUD/USD pair is caught between the 100-day Simple Moving Average (SMA) at 0.7053 acting as immediate topside resistance and the 200-day SMA at 0.6928 providing underlying support, leaving the near-term bias neutral. A daily close above the 100-day SMA would open the way for a more sustained recovery, turning that level into a key pivot for the next leg higher. On the downside, the 200-day SMA at 0.6928 is the first important support; a slide back toward this longer-term average would hint at fading bullish pressure and expose the broader range floor below.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
Author
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
