Australian Dollar Stays Low as Central Bank Maintains Rates
The Australian dollar struggled on Tuesday as the Reserve Bank of Australia (RBA) decided to keep interest rates steady, which wasn’t unexpected. However, there wasn’t much clarity on the possibility of future rate cuts.
Earlier this year, the RBA had lowered interest rates three times, mainly due to concerns over rising core inflation and a rebound in consumer demand, along with climbing house prices. Now, the cash rate remains unchanged at 3.60%, holding steady for the second consecutive year.
The central bank has also updated its forecast for inflation, now predicting that core inflation won’t hit its target of 2% to 3% until mid-2026, or even later. “If that’s the case, we might not see any reductions in interest rates until the latter half of 2026 at the earliest,” noted Harry Murphy-Cruise, who heads economic research at Oxford Economics Australia.
Interestingly, he mentioned that he feels somewhat less pessimistic about inflation trends. That said, he also pointed out that rising unemployment could strengthen the call for additional monetary easing in the coming year.
Market sentiments have already shifted, with investors now dismissing short-term rate reductions, especially since unexpectedly high core inflation in the third quarter suggests that policies may need to be tighter for a while longer. The probability of a rate cut in December is seen at around 10%, indicating that a slip to 3.35% isn’t fully factored in. This may suggest that the RBA’s easing cycle could already be finished.
In light of this, the Australian dollar stayed at about $0.6526, having dipped to $0.6515 overnight, influenced by a stronger US dollar. Its recent support level has shifted down to around USD 0.6470, with resistance noted at USD 0.6617.
Three-year Treasury futures were at 96.340 after reaching a five-month low of 96.305, and have seen a decline of 28 basis points over just over a week. Meanwhile, the 10-year bond yield remains at 4.345%, which is significantly above the October low of 4.096%.
On a related note, the Kiwi dollar also slipped to a three-week low of $0.5686 amidst the dollar’s strength. Support for it is at USD 0.5694, while resistance stands near USD 0.5800.
Investors are still optimistic that the Reserve Bank of New Zealand will lower its cash rate from 2.5% in its upcoming meeting in late November; yet, this might mark the final adjustment in a gradual move away from the 5.5% ceiling.
