Australian dollar steady as RBA holds rates, leaves door open to hikes

SYDNEY: The Australian dollar barely budged on Tuesday after the country’s central bank held interest rates steady and reiterated it would hike again if necessary, leaving markets divided on the chance of a further move.

Wrapping up its August board meeting, the Reserve Bank of Australia held its cash rate at 4.35%, having already hiked it three times since February in an effort to contain inflation.

The board noted inflation was still too high, but also that the economy was slowing as expected in the face of tighter policy. Investors see an 18% chance of a hike at the next meeting in September.

Markets imply around a 40% chance of a hike in November, from just over 50% ahead of the decision, and price in 17 basis points of tightening by the middle of next year.

“The RBA retained a hawkish bias, while the main dovish element was its explicit reference to falling house prices and weaker housing credit, which could raise the bar slightly for further tightening,” said Wee Khoon Chong, APAC macro strategist at BNY.

“We remain positive on the AUD, supported by its relatively attractive yield within G10,” he added.

“With markets pricing around 50% chance of another hike by year-end, we see scope for hawkish repricing.”

The Aussie was a fraction lower at $0.7050, having eased 0.3% overnight and away from a seven-week top of $0.7078. Support comes in at $0.7022, with major resistance at $0.7088.

It fared better on a broadly weaker yen, gaining almost 0.8% to 112.30 and recouping around half the loss suffered last week when Japan and the United States intervened to buy the yen.

The kiwi dollar was a shade firmer at $0.5890, after dipping 0.2% and off resistance at $0.5907.

Support lies in the $0.5850/60 range and a break would risk a retreat to $0.5762.

The Reserve Bank of New Zealand next meets in early September and has signalled further tightening may be needed given an energy-driven pick-up in inflation.

Markets imply an 86% probability of a quarter-point rate hike at that meeting, with the cash rate seen reaching 3.0% by year-end.