Australian Dollar Softens, ASX Perks Up After Mildly Hawkish RBA Hold

The Australian dollar softened while the ASX 200 reversed earlier losses after the Reserve Bank of Australia left the cash rate unchanged at 4.35%. Although the decision was widely expected, policymakers retained a mildly hawkish bias as inflation remains above target and uncertainty surrounding the economic outlook persists. Attention now turns to upcoming inflation and employment data, alongside the FOMC meeting, for clues on the next move in Australian markets.

Australian Dollar Eases While ASX 200 Perks Up Following RBA Hold
RBA Holds Cash Rate at 4.35% and Maintains Hawkish Bias
RBA left the cash rate unchanged at 4.35%
Today’s policy decision was unanimous
Headline and underlying inflation remain too high
Financial conditions have tightened this year following three increases in the cash rate target
Unemployment rose more than expected in April, although other labour market indicators remain more resilient
Uncertainty surrounding the outlook for domestic economic activity and inflation remains elevated
Resolution of the conflict in the Middle East remains at an early stage
There are plausible scenarios in which inflation is higher and economic activity is weaker than projected in the May baseline forecasts

RBA Maintains Hawkish Bias Despite Holding Rates
The RBA held the cash rate at 4.35%, as widely expected, while maintaining a slightly hawkish tone in its statement. Yet the modest pullback in the Australian dollar suggests markets were either unconvinced by the hawkish messaging or had largely priced it in beforehand.

Weaker employment and growth figures allowed the RBA to remain on hold after three consecutive hikes. However, elevated inflation and uncertainty surrounding the outlook for growth and inflation mean it is unlikely to abandon its hawkish bias, even if some suspect its next move may be lower.

Yet this is not a widely held view, with Westpac reiterating the potential for two more hikes beginning in August.