Australian Dollar: RBA softens hawkish stance – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad reports the Reserve Bank of Australia (RBA) delivered a less hawkish hold, keeping rates at 4.35% and judging policy “somewhat restrictive” as the labor market has eased more than expected. Haddad notes the RBA softened its hawkish bias, raised the bar for further hikes, and saw AUD/USD briefly dip before recovering during Governor Bullock’s press conference.

Carry and commodities support Aussie

"RBA delivered a less hawkish hold. As was widely expected, the RBA kept the policy rate at 4.35% for a second straight meeting. The decision was unanimous, with the Board judging policy to be “somewhat restrictive” and noting that “labour market conditions have eased by a little more than expected in recent months.”"

"The RBA softened its hawkish bias. It reiterated that “inflation is still too high”, adding that “risks to inflation are judged to be skewed to the upside.” But the guidance was tempered at the margin with the Board now prepared to “increasing the cash rate further if upside risks [to inflation] materialise”, rather than simply “if needed” previously."

"Indeed, the RBA’s updated forecasts raised the bar for another hike. The RBA raised its unemployment rate projection across the forecast horizon and lowered its policy-relevant trimmed mean inflation projections through June 2027."

"AUD/USD dipped briefly following the policy decision but recovered most of the losses during RBA Governor Michele Bullock’s press conference. Bullock highlighted it was “quite possible” that a further rate hike would be needed, pointing out that Australia’s economy is still operating above capacity."

"Bottom line, attractive carry alongside Australia’s strategic exposure to commodities linked to energy, AI, and defense remain key AUD tailwinds."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)