The Reserve Bank of Australia kept rates on hold this morning, as widely anticipated. The statement, economic projections, and press conference all pointed to a hawkish stance given sticky inflation, ING’s FX strategist Francesco Pesole notes.
“The RBA now expects core inflation to stay above 3% for most of next year and only reach the 2.5% target in 2026, and it is not ruling anything in or out in terms of policy decisions. Governor Michele Bullock said that pricing a rate cut in the next six months does not align with the board’s thinking, effectively and explicitly pushing back against current bets for 25bp currently in the curve.”
“She also insisted in the RBA’s independence from any easing pressure coming from peer central banks. All in all, the RBA did not sound worried enough about inflation to suggest another rate hike is on its way, but equally seemed quite uncomfortable with dovish market pricing and probably the big rally in AUD bonds.”
“We are seeing the Aussie dollar doing well against G10 peers this morning, in line with our call. Indeed, a rebounding USD can curb an AUD/USD rally in the very near term, but we expect Bullock’s hawkish statement to set the base for an AUD/USD rally once equity volatility abates. A return to 0.67+ remains possible before the US election.”
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