The RBA statement this morning was somewhat neutral, but it did convince the market that the Australian central bank would not raise interest rates again. As a consequence, the AUD/USD rate depreciated.

The Australian dollar exchange rate crashed on Tuesday (5/December). AUD/USD tumbled around 1% to a week low of 0.6547, while AUD/NZD fell to its lowest level since mid-October.

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The Reserve Bank of Australia (RBA) announced interest rates to remain at 4.35%. They also expect interest rates to stay at the same level until early 2024. Furthermore, the RBA revealed that inflation declined in line with expectations.

"Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks," the RBA statement read.

Market participants considered the RBA policy statement to be neutral. Several traders had previously expected a slightly hawkish bias like the RBNZ some time ago.

The neutral stance convinced the market that the Australian central bank would not raise interest rates anymore. Consequently, the AUD rate weakened significantly.

"The RBA Statement landed neutral as we expected but the lack of urgency would come as a disappointment to those looking for a hawkish hold," says a note from TD Securities.

"The RBA is not out of the woods, services inflation remains the risk but really there was nothing new of note in today's Statement to force home this message," says TD Securities. "The market has clearly read the lack of new signals to suggest the RBA hiking cycle is over."

Some analysts think AUD/USD is also in danger of further losses as market participants are currently underestimating the prospects of an RBA rate cut and overestimating the outlook for a "Fed rate cut".

"For AUD-USD, we think the most important factor is the direction of the broad USD next year and market expectations of Fed rate cuts over 2024 and 2025. We believe the current expectations of 200bp of Fed cuts by end-2025 are overly aggressive," says Daragh Maher, Head of FX Strategy at HSBC.

In comparison, Maher mentioned that the total market expectation for RBA rate cuts until the end of 2025 is only 50 basis points. "As market expectations eventually converge from both ends, it should weigh on the AUD," Maher added.