Australian dollar dips, RBA delivers hawkish hold

SYDNEY: The Australian dollar was a shade lower on Tuesday after the country’s central bank held interest rates steady as expected, though it warned that further tightening might be needed to restrain inflation.

The Reserve Bank of Australia kept its cash rate at 4.35%, having raised it three times this year from 3.60% as it fought to contain stubborn inflationary pressures.

The central bank board noted the economy and consumer demand had slowed in the face of tighter financial conditions, while the housing market had cooled.

Yet it also emphasised inflation was still too high and it stood ready to raise rates again if needed.

“A hold today gives it more time to assess how earlier rate increases are flowing through households, businesses and the labour market, while keeping its options open for future meetings,” said Stephen Smith, a partner at Deloitte Access Economics.

“Another hike later in 2026 remains firmly on the table, and our view remains that the next move is more likely to be up than down.” Investors had priced for a steady outcome this week following a run of softer data on inflation, consumer demand and employment, while proposed tax changes on property were also seen as an added weight on housing.

Markets now imply around a 30% chance of a hike at the next RBA meeting in August, and a 60% probability rates will be raised one final time to a peak of 4.60%.

The Aussie was off 0.3% at $0.7050, having bounced almost 0.5% on Monday as the outline of a peace deal in the Middle East boosted risk sentiment.

Support lies at the recent two-month low of $0.6979, while resistance comes in around $0.7088 and $0.7200.

The kiwi dollar was also down 0.3% at $0.5803, having actually lost 0.1% overnight after meeting resistance at $0.5865.

Support comes in at last week’s trough of $0.5770. Australian 10-year bond yields were up 2 basis points at 4.831%, after rallying on Monday as oil slid.

“Inflation risks look well and truly priced,” said Adam Bowe, head of Australia Portfolio Management at PIMCO.

“As medium-term growth risks increase, the RBA now focus on both sides of their mandate, and 10yr bond yields are around 4.85%, we think there is considerable value in Australia duration.”