AUDUSD Falls After the RBA Leaves Interest Rates Stable at 4.1%

The AUDUSD currency pair was trading down over 108 pips as the US dollar rallied higher against the Australian dollar, pushing the pair lower. The Reserve Bank of Australia’s (RBA) interest rate decision triggered the bearish move, where they left rates unchanged at 4.1%.

The move to keep rates unchanged was unexpected as most analysts were counting on the central bank to hike rates one more time before considering halting the rate hikes as inflation in the country remains high. 

The RBA’s move caught the markets by surprise, with some analysts pointing out that another rate hike would have been welcome to fight inflation. However, many also wondered whether the RBA was finally done hiking rates like the Fed. 

The AUDUSD’s decline was also attributed to the much stronger US dollar rising against most of its peers as tracked by the US Dollar Index (DXY). Investors were also watching the Australian building permits data, recorded at a monthly -7.7% monthly in June, beating analysts' estimates of -8%. 

Still, the housing sector remains in trouble as the demand for mortgages falls and the number of homeowners struggling to repay their mortgages increases. Australia has one of the highest numbers of variable interest rates mortgages susceptible to changes in the central bank’s lending rate. 

However, Australian inflation could increase as global oil prices recover, forcing the RBA to return to the drawing board and start hiking rates again. Luckily for Australia, its labour market remains tight, which should help underpin consumer spending. 

Clifford Bennett, chief economist at ACY Securities, said: Wouldn't it be nice if the last hike was the end of the madness? A welcome relief for all of us, as one of the nation's most aggressive rate hiking cycles in history hopefully nears an end. That said, inflation remains extreme and has only marginally retreated from its peak; services and wages pressures also remain heightened. Up to 10% of mortgage holders are believed to now be in or at risk of negative equity. Property prices have fallen up to 20% in some major city suburbs, and mortgage holders' interest payments have blown out to crisis levels.”

*This is not investment advice. 

The AUDUSD price chart. 

The AUDUSD currency pair was trading down over 108.8pips (1.62%) as the US dollar rallied against the Aussie dollar.