The Reserve Bank of Australia (RBA) left its cash rate unchanged at 4.35% at its monetary policy meeting today, Commerzbank’s FX Analyst Volkmar Baur notes.  

Hawkish RBA is supporting the Australian dollar

“This was expected by both the market and all economists surveyed by Bloomberg, given the continued strength of the labor market. The fact that the Australian dollar is slightly higher this morning is likely due to the RBA reiterating that it is not ruling anything out for the future. This means, another rate hike is still on the table, at least in theory.”

“Given the recent weakness in the economy - the PMI for the broader economy fell below 50 yesterday - a further tightening of monetary policy is unlikely. But it also shows that the RBA is still debating whether to cut rates at all, not just when.”

“For now, the hawkish RBA is supporting the Australian dollar. However, I am afraid that this may be too much of a drag on the economy, and this will be reflected in a weaker AUD in the coming months.”