Australian Central Bank Meeting Removes Rate Hike Option – Minutes

The Reserve Bank of Australia minutes of the March meeting indicated that there was no mention of raising interest rates. This points to a less hawkish stance but the Australian dollar is unchanged following the release of the minutes.

Reserve Bank drops reference to rate hike

The RBA maintained the cash rate at 4.35% at the March 19th meeting. This marked the third straight time that the RBA paused. This move was expected and what was of more interest to traders was the slight change in language in the rate statement. The February statement said that “a further increase in interest rates cannot be ruled out” and this was changed to the “Board is not ruling anything in or out” at the March meeting.

The markets focused on this slight change in language, viewing it as a signal that the RBA had removed its hiking bias. This sent the Australian dollar sharply lower in the aftermath of the meeting, although it fully recovered by the next day.

The minutes have strengthened the view that the RBA is moving away towards a more neutral stance and is more open to rate cuts sometime this year. The markets had dismissed the possibility of a rate hike and the minutes appear to have laid to rest any lingering concerns that the central bank could continue to raise rates.

The minutes are a clear indication that the Board is becoming more confident that the battle against inflation is on its way to being won, although there is still some way to go before inflation is brought down to the target range of 2 to 3 percent.

Inflation dropped to 4.1% in the fourth quarter of 2023 but that is still high and the RBA is unlikely to lower rates before inflation drops closer to the target range. As we are seeing with the Federal Reserve and other major central banks, inflation is moving in the right direction but the RBA is not in any rush to lower rates. The central bank is widely expected to pause again at the next meeting on May 7.

AUD/USD Technical

• AUD/USD is putting pressure on resistance at 0.6519. Above, there is resistance at 0.6554
• There is support at 0.6480 and 0.6445

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