Australian Dollar: RBA pause risk weighs on Aussie – BBH

FXStreet Insights Team FXStreet

Brown Brothers Harriman’s (BBH) Elias Haddad reports that Australian Dollar (AUD) is underperforming after Reserve Bank of Australia (RBA) Governor Michele Bullock balanced a hawkish bias with a message of patience, noting easing domestic demand and labour conditions. RBA cash rate futures cut August hike odds from about 30% to 20%, with AUD/USD edging towards key support at the 200-day moving average as BBH sees risks skewed to an extended pause.

RBA patience trims hike expectations

"RBA Governor Michele Bullock stuck to the bank’s hawkish bias but also hinted at patience. Bullock said the full effects of increases in the cash rate from earlier in the year will take time to materialize, adding “there’s evidence that domestic demand and labour market conditions have been easing as required to bring the economy back towards balance.” Still, Bullock reiterated that the bank is prepared to “increasing the cash rate further if needed.”"

"RBA cash rate futures trimmed August rate hike bets from about 30% to 20% after Bullock’s remarks. AUD dipped against USD and most other major currencies. AUD/USD is edging down towards key support at 0.6904, the 200-day moving average."

"In our view, the risk is skewed towards an extended pause in the RBA tightening cycle which is a headwind for AUD: (i) RBA projects real GDP growth to be below potential over the next two years; (ii) RBA cash rate at 4.35% currently sits near the top of the range of model-based central estimates of the nominal neutral rate."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

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FXStreet Insights Team

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