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Jun 18 - 10:55 AM

MUFG: RBA's June Meeting Provides Near-Term Support for AUD

By eFXdata  —  Jun 18 - 09:35 AM

Synopsis:

The Reserve Bank of Australia's (RBA) recent policy meeting has modestly strengthened the Australian dollar, with the AUD/USD and AUD/NZD rates reaching intra-day highs. Despite acknowledging economic weaknesses, the RBA's cautious stance on future rate hikes has provided near-term support for the currency.

Key Points:

  1. AUD Strengthening Post-Meeting:

    • The Australian dollar saw modest gains following the RBA's policy meeting, with AUD/USD and AUD/NZD rates peaking at 0.6632 and 1.0834, respectively.
  2. Inflation and Policy Uncertainty:

    • The RBA noted that while inflation is easing, it remains high and is slowing more gradually than expected.
    • The central bank is uncertain about the interest rate path needed to bring inflation to target within a reasonable timeframe, leaving all options open.
  3. Economic Downside Risks:

    • The decision not to hike rates further was influenced by signs of weak economic momentum, including slow GDP growth, a rising unemployment rate, and slower wage growth.
  4. Market Expectations and RBA Outlook:

    • Despite the RBA's tough talk on potential future rate hikes, the market is less convinced, expecting the next policy move to be a rate cut later this year.
    • MUFG shares this view but acknowledges that the RBA could still tighten policy further, alongside the Bank of Japan, which could support the AUD.

Conclusion:

The RBA's latest policy meeting has provided near-term support for the Australian dollar, despite highlighting economic weaknesses and uncertainties in the inflation outlook. Market participants remain skeptical about further rate hikes, anticipating a potential rate cut later this year. However, the possibility of the RBA tightening policy further, along with a favorable global economic outlook, could continue to bolster the AUD.

Source:
MUFG Research/Market Commentary

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