The Reserve Bank of Australia acknowledges greater challenges in reducing inflation but refrains from further interest rate hikes.

AUD/USD News

The Australian dollar dropped approximately 0.5% against the US dollar, reaching a low of 0.6586 during Tuesday's Asia session trading. The decline in AUD/USD is attributed to strong technical resistance around the 0.6650 level and disappointing statements from the Reserve Bank of Australia (RBA) for market participants.

This morning, the RBA maintained the interest rate at 4.35%. While acknowledging greater challenges in reducing inflation, they rejected market expectations of additional interest rate hikes.

The RBA projects inflation to rise from 3.6% in the first quarter to 3.8%, remaining at that level until the end of the year. Although inflationary pressures are still declining, albeit at a slower pace than previously estimated, the central bank signals an intention to maintain the current interest rate for a longer period.

The RBA's February statement mentioned the possibility of further interest rate hikes if inflation remained high. However, this indication is absent from this month's statement, likely reflecting the central bank's reluctance to tighten policy amid a significant economic slowdown.

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The RBA's less hawkish stance than market expectations has weakened the Australian dollar against various other major currencies. Additionally, the RBA's statement has dispelled market speculation about Australian interest rate cuts starting in September.

"Talk around another cash rate hike was largely borne of stubborn inflation pressures and this persists with the Reserve Bank raising its near-term inflation forecasts," said Dwyfor Evans, head of Asia-Pacific macro strategy at State Street Global Markets, "However, remarks around a peak in wage growth and expectations on inflation moving back to target range – a longer process than previously anticipated – seem to open up a period of unchanged rates with no near-term appetite towards rate easing."

The RBA's stance aligns with that of the US Federal Reserve. The Fed's chairman stated last week that they would maintain the current interest rate for a longer period to ensure the achievement of inflation targets, with no intention of raising or lowering interest rates amid growing uncertainty. While the greenback briefly weakened in response to the statement, its position has now stabilized.