AUD/USD Sinks After RBA Pause, GDP Next

09/05/2023

1 minute read

2023.09.05 07:39

MarketPulse

RBA holds rates for third straight time
AUD/USD slides 1.3%
Australian GDP is expected to slow in the second quarter

plunged on Tuesday after the Reserve Bank of Australia held rates at today’s policy meeting. In the European session, AUD/USD is trading at 0.6373, down 1.36%.

RBA holds rates as expected

The RBA held interest rates at today’s meeting for a third straight time, maintaining the official cash rate at 4.10%. This was the final meeting chaired by Governor Philip Lowe, with some calling the pause a parting gift for mortgage owners.

The decision was widely expected, and Lowe’s rate statement was a repeat of what we’ve heard before. Lowe stated that:

Inflation had “passed its peak” but was “still too high and will remain so for some time yet”.

Lowe again kept open the possibility of further tightening, depending on the data. In a nutshell, inflation is headed in the right direction but more work lies ahead in order to bring inflation back down to the 1%-3% target range.

There were no surprises from the RBA, but that didn’t prevent the Aussie from taking a huge tumble, with the Australian dollar currently very close to an 11-month low against the US dollar. The fact that the central bank has extended its pause for a third straight time boosts the view that the RBA is done with rate hikes, barring some catastrophic economic data, has made the Australian dollar a less attractive investment. The markets will now be looking for clues about possible rate cuts, which could come sometime in 2024.

Investors will now shift their attention from the RBA hold to the GDP report for the second quarter. The economy grew by a respectable 2.3% in Q1 but is expected to slow to 1.8% in the second quarter. A reading below 1.8% will likely put further downward pressure on the shaky Australian dollar.

AUD/USD Daily Chart