Aussie dollar down as RBA keeps interest rates unchanged

RBA keeps rates unchanged, Aussie slips

The Australian dollar edged down by 0.66% against its American counterpart to $0.6576, after the Reserve Bank of Australia's (RBA) policy decision left the Official Cash Rate (OCR) unchanged at a 12-year high of 4.35%.

The central bank’s move was widely anticipated by markets. Despite the recent dip, the Aussie has remained elevated, supported by recent data indicating a positive turn in Australia's monthly inflation gauge in November the first in three months. Australian housing loans figures in October also surpassed expectations.

RBA Governor Michele Bullock had previously cautioned that domestic demand was increasingly contributing to inflation, requiring a "substantial" response from interest rates.

Markets now indicate a roughly 50% chance of the central bank raising rates again next year. External factors, such as growing expectations of the U.S. Federal Reserve potentially easing policy next year, have also contributed to the Aussie's recent strength.

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RBA interest rate decision: Markets.com analyst Neil Wilson says central bank had reason to pause

In his morning notes on Monday, Markets.com Chief Markets Analyst Neil Wilson forecast that the RBA would likely pause, given slowing inflation in Australia:

“The Reserve Bank of Australia [may] pause again after raising rates 25bps in November. Last month, the central bank indicated it may not seek to raise again, refraining from repeating a phrase in October statement that ‘some further tightening of monetary policy may be required’. Australia’s inflation for October gives the RBA reason to pause, with it slowing to 4.9% from 5.6% last time and against a forecast 5.2%.”

AUD forecast: Prospect of possible interest rate hike should support Aussie, says Commerzbank

In their AUD/USD forecast, economists at Frankfurt-based Commerzbank wrote that the mere likelihood of a potential rate hike should offer support to the Australian dollar going into 2024:

“A final, perhaps only small, rate step of 15 basis points is still possible. However, the RBA is unlikely to be in a hurry. [It will likely] stay on hold in December, take its leave for the summer break and then assess in February, on the basis of the inflation figures for the fourth quarter and other economic data, whether another move is necessary or not.

In general, however, the prospect of a possible interest rate hike should support the AUD. Especially if the price data and economic data surprise to the upside in the coming weeks.”

In a longer-term Australian dollar forecast from Rabobank, analysts said AUDUSD could test the 0.70 area on a 12-month view:

“Interest rate differentials look set to offer the AUD support through much of next year. That said, the AUD is sensitive to broad levels of risk appetite and to the outlook for Chinese growth. While Fed rate cuts would underpin risk appetite in 2024, a rally in the AUD/USD could be curtailed if growth in China continues to disappoint.

On balance, we are optimistic that AUD/USD could be testing the 0.70 area on a 12-month view. This would be in line with the average level of the exchange rate over the past 5 years.”

An AUD to USD forecast issued by Australian bank Westpac was broadly in line with Rabobank, indicating a potential AUD/USD exchange rate of 0.67 by March 2024, 0.68 by June 2024 and 0.69 by September 2024.

At the time of writing on Tuesday, the AUD to USD exchange rate stood at $0.6584, with the greenback gaining close to 0.56% against the Aussie on the day, as per MarketWatch data. The DXY dollar index — a measure of the greenback's strength against a basket of six other major currencies — mostly traded sideways around the 103.60 mark.

When considering foreign currency (forex) for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.