The AUDUSD currency pair was trading down over 41 pips as the Australian dollar fell against the US dollar after the Reserve Bank of Australia (RBA) paused its interest rate hikes but left the door open for further rate hikes if needed.
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The RBA said that it would continue monitoring the economic situation in the country with a focus on whether inflation will continue falling. However, most analysts and investors expected the RBA to keep its lending rate unchanged in the face of falling consumer price inflation (CPI).
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According to the latest inflation report, Australia’s CPI has fallen from the record high of 8.4% in December to 6.8%, indicating that the inflation rate is quickly subsiding. However, the recent oil production cuts implemented by the OPEC+ cartel threaten the recent gains made by most countries fighting inflation.
RBA Governor Phillip Lowe said that the central bank recognises that the impact of its rate hike would take time to be felt across the economy. Therefore, the RBA was still monitoring the impact of its rate hikes on the economy before plotting its next course of action.
The decision not to hike interest rates was taken to give the RBA time to continue assessing the impact of previous rate hikes on Australia’s economy. The reserve bank governor said the opportunity to achieve a soft landing for the economy was narrow.
Lowe was confident that Australia’s banking system remains well-capitalised and highly liquid. Hence, it was not prone to the crisis witnessed in the United States and Europe, where some banks have gone under.
The weak Chinese Caixin Manufacturing PMI data released on Monday also affected the Aussie’s strength, indicating that China’s economy was growing sluggishly. Investors are concerned that weak Chinese economic growth could affect Australia’s economy negatively, given that China is the country’s top trading partner.
The currency pair did not benefit from the US dollar’s overall weakness against other leading currencies, such as the Sterling pound and the euro. This is because while inflation is falling in Australia, the same does not apply to the UK and the eurozone, where inflation remains high.
*This is not investment advice.
The AUDUSD price chart.
The AUDUSD currency pair was trading down 41.8 pips (0.62%) as the Australian dollar fell against the US dollar.
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