Economists at Société Générale analyze AUD outlook after the RBA decided to keep the cash rate unchanged at 4.10%

AUD outlook tied to industrial metals

The statement reiterates that ‘some further tightening may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve’. In theory, this leaves the door open for another increase to 4.35%, which is also our base case. 

The hawkish RBA bias can only support the AUD if the downtrend in industrial metals subsides, or the Fed starts cutting interest rates. The anaemic global manufacturing backdrop does not fill us with confidence that AUD/USD will attempt to return above 0.69-0.70 soon. 

The mood should improve towards the latter part of the year if markets revert to pricing in rates cuts in the US. 

Foreign trade data for May on Thursday and US NFP on Friday should set the direction for the currency in the near term.