Reserve Bank of Australia Holds Interest Rate Steady; No Rate Cut Expected This Year

The Reserve Bank of Australia (RBA) Maintains a Hawkish Tone, with Analysts Ruling Out the Possibility of Rate Cuts This Year...

On Tuesday, the RBA kept its interest rate unchanged at 4.35% for the seventh consecutive meeting, aligning with market expectations, despite the Federal Reserve having initiated its monetary easing cycle with a significant 50 basis point rate cut.

Benefiting from the divergence in monetary policy prospects between the Fed, which has just begun its easing cycle, and the RBA, the Australian dollar continued to strengthen against the US dollar, rising by 10 points upon the news and reaching a new intraday high.

In its monetary policy statement, the RBA maintained its hawkish tone, stating that it would not rule out any measures in the fight against inflation.

The policy statement indicated that current forecasts suggest inflation will not consistently return to target levels until 2026. Inflation remains above target levels and is showing persistence. The committee is resolute in its determination to restore the inflation rate to target levels.

This marks the seventh time the RBA has kept the interest rate at 4.35%. The central bank last raised rates in November 2023 when inflation data exceeded expectations. Since then, inflation has eased, with the CPI growth rate at 3.8% for the 12 months ending in the June quarter.

Lauris, Head of Research for CoreLogic Asia-Pacific, stated that the decision to keep rates stable implies that the RBA is satisfied with the gradual downward trajectory of inflation. He said, "Overall, this decision is likely to boost consumer confidence, as more households solidify their view that rate hikes have ended and that the RBA's next move will be to cut rates. The only uncertainty now is the timing and pace of those cuts."

RBA Governor Bullock has previously indicated that rate cuts are unlikely in the short term. She stated that rates will remain unchanged for some time, did not explicitly consider raising rates at this meeting, and does not believe there will be a possibility of rate cuts in the near future.

Analysts believe that the RBA is unlikely to take action before the release of key Q3 CPI data on October 30th, which could validate the central bank's progress on inflation.

Analysts at TD Securities (TDS), in anticipation of the RBA's policy decision, stated: "The RBA's communication and data since the central bank's August meeting have not provided a compelling reason for a shift in stance at this week's meeting, thereby ruling out the possibility of rate cuts this year."CreditorWatch Chief Economist Anneke Thompson stated that if inflation data continues to follow the current slow trajectory of softening, then the Reserve Bank of Australia (RBA) is unlikely to change course, and the first rate cut is unlikely to occur before the end of this year. However, a weak unemployment report could quickly change this thinking.

FXStreet Asia Conference Chief Analyst Dhwani Mehta pointed out that the 14-day Relative Strength Index (RSI) for the Australian dollar against the US dollar points above 50, currently near 64.50, supporting the bullish potential of the Australian dollar. Buyers need to break through the static resistance near 0.6900 to achieve a sustained upward trend. The next resistance is located at the psychological level of 0.6950, before heading towards 0.7000.

On the other hand, any corrective decline could find support at the 21-day Simple Moving Average (SMA) of 0.6747, and a break below that area cannot rule out a new downward trend towards 0.6670. This level is the convergence point of the 50-day and 100-day SMAs.