AUD/USD dropped after the Reserve Bank of Australia (RBA) removed its tightening bias. Economists at Commerzbank analyze Aussie’s outlook.
RBA deletes explicit reference to further tightening
Interest rates were left unchanged at 4.35%. At the same time, RBA removed its hint that further tightening might be appropriate.
The next interest rate move is likely to be a rate cut. However, this does not mean that such a cut will take place in the near future. The RBA also pointed out that inflation in services is much more persistent. And high wage growth is only consistent with the inflation target if productivity growth picks up. In our view, the RBA is therefore maintaining its cautious approach.
It is likely to be several months before the first rate cut is announced. The RBA is unlikely to cut rates until inflation falls more significantly. This is unlikely to happen until after the Fed, so the Aussie should be able to make gains again in the coming weeks.