The RBA continues to cut – Commerzbank

The Reserve Bank of Australia (RBA) has decided to continue its cycle of interest rate cuts, lowering its key interest rate by another 25 basis points to 3.85% this morning, Commerzbank's FX analyst Antje Praefcke notes.

AUD takes a slight hit Tuesday morning

"The RBA forecasts that, while headline inflation is likely to rise over the coming year to around the top of the band as temporary factors unwind, underlying inflation is expected to be around the midpoint of the 2-3% range throughout much of the forecast period. Admittedly, there are signs that the labor market remains tight, but there are uncertainties regarding developments at home and abroad and the lags in the effects of monetary policy."

"All in all, the RBA thinks that inflation risks have decreased, while the risks to domestic economic development remain high – here, the RBA expects headwinds. According to the RBA, the interest rate cut makes monetary policy somewhat less restrictive. At the same time, according to the RBA, monetary policy is well placed to respond decisively to international developments if they were to have material implications for activity and inflation in Australia."

"Ultimately, the RBA's statement does not indicate that it is considering pausing or ending the interest rate cycle. This is why the AUD took a slight hit this morning."