Australian dollar steady as RBA holds rates, leaves door open to hikes

SYDNEY: The Australian dollar remained relatively stable on Tuesday as the Reserve Bank of Australia (RBA) kept interest rates unchanged and signaled potential future hikes if inflation remained a concern. The RBA maintained its cash rate at 4.35%, having increased it three times since February to curb inflation. While policymakers acknowledged inflation levels were still elevated, they also noted the economy was decelerating as anticipated due to tighter monetary policy.

Investors estimated an 18% probability of a rate hike during the September meeting, with around a 40% chance of another increase in November. The RBA expressed a hawkish stance, although its remarks about falling property prices and reduced housing credit introduced a more dovish element. Wee Khoon Chong, an APAC macro strategist at BNY, highlighted that the AUD remains appealing due to its relatively higher yield compared to other G10 currencies.

Despite markets pricing a roughly 50% chance of a rate hike by the end of the year, analysts foresee opportunities for hawkish tone adjustments. The Australian currency slipped slightly to $0.7050, down 0.3% from the previous day, and was trading below its seven-week high of $0.7078. Key support is at $0.7022, while the main resistance level remains at $0.7088.

The AUD demonstrated resilience against the weakened yen, climbing almost 0.8% to 112.30, regaining half of the losses incurred last week following Japan and the United States' intervention to stabilize the yen. The New Zealand dollar showed a marginal improvement to $0.5890 following a 0.2% decline, hovering just above the $0.5907 resistance level.

Support is anchored between $0.5850 and $0.5850, with a sharp breach potentially triggering a move towards $0.5762. The Reserve Bank of New Zealand is set to meet early September, with forecasts suggesting a 86% likelihood of a quarter-point rate increase, with the cash rate targeting 3.0% by year-end.