SYDNEY: The Australian dollar barely budged on Tuesday after the country’s central bank cut interest rates as expected and stayed cautious on the outlook for more, leaving markets anticipating a three-month break until the next likely easing.
In a unanimous decision, the Reserve Bank of Australia’s policy board trimmed its cash rate by 25 basis points to 3.60%, a two-year low and the third cut in seven months.
Markets had again been fully priced for an easing, having been badly stung by a steady decision on July, given core inflation had slowed toward the middle of the RBA’s target band of 2% to 3% while unemployment had popped to its highest since late 2021 at 4.3%.
Futures imply only a one-in-three chance of a further easing at the next meeting in September, with most analysts assume the RBA will chose to wait for the third-quarter inflation report due in late October before deciding whether to move in November.
“The Bank reiterated its view that it “remains cautious about the outlook”, which suggests that it will keep easing only once per quarter,” said Marcel Thieliant, head of Asia-Pacific economics at Capital Economics.
“Most importantly, the Bank endorsed market expectations of further loosening in its economic forecasts and we think it will ultimately slash rates to 2.85%.”
Markets are fully priced for an eventual drop to 3.10% by early next year, with a small chance of reaching 2.85%.
With so much baked in, the Aussie was little moved at $0.6515, having dipped overnight as its U.S. counterpart firmed broadly. Resistance lies around $0.6540 and $0.6625, with support at $0.6490 and $0.6419.
The New Zealand dollar was steady at $0.5938, having also eased modestly overnight. Support lies around $0.5925 and $0.5857, with resistance at $0.5971 and $0.6059.
Australian three-year bond futures were unchanged at 96.595, while 10-year yields dipped 1 basis points to 4.26%.