Australian Dollar outperforms despite RBA’s hawkish tone fails to sway markets

• Australian Dollar gains against its peers even as financial markets seem unconvinced by the RBA’s hawkish tone.
• The RBA left its OCR unchanged at 4.35% on Tuesday, and kept the door open for more rate hikes.
• Investors await the US CPI data for July.

The Australian Dollar (AUD) is up against its major currency peers, trading marginally higher at around 0.7068 against the US Dollar (USD) during the European trading session.

The antipodean outperforms despite increasing doubts over the Reserve Bank of Australia’s (RBA) appetite for raising interest rates further this year. In the monetary policy announcement on Tuesday, the RBA left its Official Cash Rate (OCR) unchanged at 4.35% for the second time in a row, as expected, but kept the possibility of a fourth interest rate hike this year on the table, citing upside inflation risks.

“The board hopes to slow the economy, sees upside risks to inflation,” RBA Governor Michele Bullock said at the press conference, and added, “We will raise rates again if needed.”

According to analysts at Standard Chartered, the Reserve Bank of Australia is keeping a flexible stance on policy despite holding the cash rate steady. They note that at the press conference, Governor Bullock “talked up the uncertainty around the RBA’s central forecasts and did not rule out the need for more policy tightening in the immediate future if upside inflation risks materialize.”

Even so, Standard Chartered stresses that “our base case remains no more RBA rate hikes in the foreseeable future.” The bank cautions that “the risk to our view is skewed towards a hike in Q4 if demand does not slow sufficiently or if energy prices revisit recent highs, exacerbating both capacity and price pressures.” Ultimately, the analysts argue that “easing labor-market conditions, if sustained, should help contain underlying wage and price pressures in the economy,” supporting the case for rates to stay on hold.

Contrary to the RBA keeping the door open for further monetary policy tightening, strategists at Commerzbank expect an interest rate cut instead. In a note, analysts highlighted that the latest RBA communication “does not read particularly hawkish,” noting that the updated projections “revised the expected unemployment rate upward, while short-term inflation forecasts were revised downward.” They point out that “only in the medium term were inflation forecasts revised upward,” a shift that “likely explains the statement that further rate hikes are certainly conceivable and that inflation risks remain on the upside.”

All told, Commerzbank judges that “the decision and the forecasts seem to be in line with market expectations; the AUD is showing little movement in its initial reaction, at least.” However, in terms of the policy outlook, the bank reiterates that “in the medium term, we continue to expect that the RBA’s next move will be an interest rate cut, so the AUD is likely to remain under pressure in the coming months.”

Meanwhile, the US Dollar trades almost flat ahead of the United States (US) Consumer Price Index (CPI) data is scheduled to be published at 12:30 GMT.

US Dollar steadies as markets await pivotal July CPI print

Brown Brothers Harriman’s Elias Haddad notes that “markets are in a holding pattern ahead of today’s critical US July CPI report (1:30pm London, 8:30am New York),” with the release set to be “a key swing factor for Fed funds rate expectations and set the tone across rates, currencies, and broader risk sentiment.” He points out that Fed funds futures currently “price in 50% odds of a 25bps hike in September to a target range of 3.75-4.00%, down from a high of 75% end-July, and just over 40bps of cumulative tightening in the next twelve months.”

On the data itself, Haddad expects “US July CPI to firm modestly but stop short of signaling a renewed acceleration in inflation.” BBH forecasts headline CPI “to rise +0.1% m/m vs. -0.4% in June and ease to 3.4% y/y vs. 3.5% in June,” while core CPI is projected “to rise +0.2% m/m vs. 0.0% in June and ease to 2.5% y/y vs. 2.6% in June.”

AUD/USD Technical Analysis

In the daily chart, AUD/USD trades at 0.7066, holding a bullish near-term bias as price extends higher within an upward parallel channel. The pair is trading above the 20-day exponential moving average (EMA) at 0.7021, which reinforces the constructive tone, while the channel’s upper boundary at 0.7079 acts as immediate overhead resistance. The Relative Strength Index (RSI) at 59.66 sits in positive territory but shy of overbought, suggesting persistent buying interest without signs of exhaustion yet.

On the downside, initial support is seen at the 20-day EMA around 0.7021, with a deeper floor at the lower edge of the channel near 0.6951 if a corrective pullback unfolds. On the topside, a clear break above the channel top at 0.7079 would open the way for a continuation of the advance, keeping the bullish bias intact as long as the pair holds above the 0.7021 support area.

(The technical analysis of this story was written with the help of an AI tool. Know more.)