- The Reserve Bank of Australia is expected to hold the interest rate at 3.60% in September.
- RBA Governor Michele Bullock’s press conference and any tweaks to the Monetary Policy Decision Statement will be closely scrutinized.
- The RBA policy announcements could rock the Australian Dollar.
The Reserve Bank of Australia (RBA) is on track to leave the Official Cash Rate (OCR) unchanged at 3.6% after ending its September monetary policy meeting on Tuesday. The decision will be announced at 04:30 GMT.
The Monetary Policy Decision Statement will not be accompanied by the quarterly economic forecasts, but will be followed by RBA Governor Michele Bullock’s press conference at 05:30 GMT.
With the rate cut pause widely expected, any tweaks to the Monetary Policy Decision Statement and any surprises offered by Governor Bullock’s comments during the press conference could stir the Australian Dollar (AUD).
RBA awaits quarterly CPI before the next interest rate move
Testifying before the House of Representatives Standing Committee on Economics a week ago, RBA Governor Bullock said that she is more confident that inflation will stay in the bank’s target of the 2% to 3% band.
“Labour market conditions have eased a little, with unemployment rising slightly, but some tightness remains,” Bullock told the Australian parliament.
Bullock clearly downplayed the prospects of a rate cut this week, noting that the “Board will remain attentive to data and the evolving assessment of risks to guide decisions.”
Therefore, the RBA is unlikely to act until the release of the quarterly Australian Consumer Price Index (CPI) data due for release on October 29. The inflation report will help determine the central bank’s rate move for the November 4 meeting.
On September 24, the Australian Bureau of Statistics (ABS) reported that the monthly CPI rose 3.0% in August from a year earlier, up from 2.8% in July, mostly due to base effects. It came in just above forecasts of 2.9%.
Australian consumer prices rose at the fastest annual pace in a year in August after a hot July, reducing the likelihood of an interest rate cut at its November meeting to 50% from almost 70% before the data.
“Details of the report, mostly in the services sector, suggested some upside risk for third-quarter inflation, which led Barrenjoey, Deutsche Bank, the National Australia Bank, Macquarie and Citi Australia to give up their calls for a rate cut in November,” according to Reuters.
How will the Reserve Bank of Australia’s decision impact AUD/USD?
AUD/USD is holding its recovery momentum from three-week lows of 0.6521 as it heads into the RBA policy announcements on Tuesday.
The language in the Monetary Policy Decision Statement and any hints from RBA Governor Bullock will be key to determining the direction of interest rates and the AUD.
If the central bank sticks to its cautious rhetoric on further easing, while maintaining ‘the data-dependent’ stance, the AUD could witness a buying resurgence on diminishing odds of a rate cut in November.
On the contrary, if Bullock voices concerns over the economic outlook due to US tariffs as well as over the labor market, investors could perceive the pause as dovish, leaving the door open for a rate reduction in November. In this scenario, Aussie sellers could regain control.
Dhwani Mehta, Asian Session Lead Analyst at FXStreet, highlights key technical levels for trading AUD/USD following the policy announcement.
“A cautious hold could provide additional legs to the AUD/USD recovery, targeting the previous week’s high of 0.6628. The 14-day Relative Strength Index (RSI) is looking to pierce the midline from below, adding credence to the renewed upside in the pair. A sustained move above the 0.6628 barrier could put the 0.6650 psychological level to test.”
On the contrary, “AUD/USD could come under fresh selling pressure on a dovish message by the RBA. The pair could retest the three-week trough of 0.6521, where the key 100-day Simple Moving Average (SMA) aligns. A daily candlestick close below that level could initiate a fresh downtrend toward the 0.6450 psychological level, with the last line of defense for buyers seen at the 200-day SMA at 0.6404,” Dhwani adds.
Australian Dollar Price This Month
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies this month. Australian Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.23% | 0.41% | 1.13% | 1.39% | -0.32% | 1.75% | -0.46% | |
| EUR | 0.23% | 0.64% | 1.29% | 1.62% | -0.09% | 1.99% | -0.22% | |
| GBP | -0.41% | -0.64% | 0.54% | 0.96% | -0.72% | 1.34% | -0.81% | |
| JPY | -1.13% | -1.29% | -0.54% | 0.32% | -1.42% | 0.65% | -1.53% | |
| CAD | -1.39% | -1.62% | -0.96% | -0.32% | -1.67% | 0.37% | -1.76% | |
| AUD | 0.32% | 0.09% | 0.72% | 1.42% | 1.67% | 2.08% | -0.08% | |
| NZD | -1.75% | -1.99% | -1.34% | -0.65% | -0.37% | -2.08% | -2.12% | |
| CHF | 0.46% | 0.22% | 0.81% | 1.53% | 1.76% | 0.08% | 2.12% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.