RBA Leaves the Cash Rate at 4.10% and Further Rate Hikes on the Table

Highlights

• The RBA left the cash rate unchanged at 4.10% today.
• Board members highlighted uncertainties about household spending and the Chinese economy.
• Going forward, the RBA will focus on the global economy, household spending, inflation, and labor market trends.

RBA Interest Rate Decision

The Reserve Bank of Australia (RBA) left the cash rate unchanged at 4.10% today. Economists forecast the RBA to hold the cash rate at 4.1%. The hold on interest rates turned investor focus to the RBA Rate Statement.

Salient points from the Rate Statement included,

• The Board expects higher interest rates to continue delivering a more sustainable balance between supply and demand.
• Uncertainty about the ‘surrounding’ economic outlook and the supply and demand rebalancing led the Board to leave the cash rate unchanged.
• While past its peak, Australian inflation remained too high.
• Service sector inflation and fuel prices continue to keep inflation elevated.
• The Australian economy is seeing below-trend growth, weighed by the influence of high inflation on real household incomes.
• Service price inflation remains persistent overseas and could follow a similar trend in Australia.
• The outlook for household consumption remains uncertain.
• Globally, stress in the Chinese economy is also contributing to the uncertain outlook.
• Further policy tightening will hinge on incoming data and the assessment of risks.
• The Board will focus on the global economy, domestic household spending trends, inflation, and the labor market.

The RBA held back from signaling further rate hikes. However, the Rate Statement supported bets on a higher-for-longer interest rate path to bring inflation to target.

AUD/USD Reaction to the RBA Interest Rate Decision and Rate Statement

Before the RBA interest rate decision, the AUD/USD rose to a pre-statement high of $0.63671 before falling to a low of $0.63397.

However, in response to the RBA decision and Rate Statement, the Aussie Dollar fell to a low of $0.63362 before rising to a post-Rate Statement high of $0.63508.

This morning, the AUD/USD was down 0.21% to $0.63500.

Up Next

Later today, the US labor market will be in the spotlight. The influential US JOLTs Job Openings Report will garner investor interest. An upward trend in job openings would signal tight labor market conditions and support the hawkish Fed interest rate path.

Economists forecast job openings to increase from 8.827 million to 8.830 million in August.

However, investors should also consider FOMC member commentary. A rise in job openings and hawkish Fed comments would fuel another jump in US Treasury yields at the expense of riskier assets.