Australian Dollar: Constructive carry outlook with RBA on hold – OCBC

OCBC’s Sim Moh Siong and Christopher Wong note the Reserve Bank of Australia (RBA) kept rates unchanged at 4.35% but retained a modest tightening bias, with the Board having actively considered a hike. They remain constructive on the Australian Dollar (AUD) over the next one to two quarters, citing attractive carry and potential China stimulus, while expecting more measured gains as growth and inflation moderate.

Carry and China support AUD

"The RBA unanimously voted (9-0) to keep the cash rate unchanged at 4.35%, while retaining a modest tightening bias. AUD's intraday round-trip reflected mixed signals between the policy statement and Governor Bullock's subsequent press conference."

"Markets viewed the statement and updated forecasts as less hawkish than feared, although Bullock noted that, unlike at the June meeting, the Board actively considered the case for a rate hike in August."

"We remain constructive on AUD over the next one to two quarters, supported by its attractive carry profile and the potential for further Chinese policy stimulus. While the RBA is likely at the peak of its tightening cycle, sticky inflation means the risk of another rate hike cannot be ruled out."

"Over the medium term, however, we expect AUD gains to become more measured as growth slows, inflation moves back towards target, and the RBA gradually shifts away from a restrictive policy stance."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)