Australian dollar holds steady as RBA takes a less hawkish tone

SYDNEY: The Australian dollar held steady on Tuesday after the country’s central bank kept rates on hold as expected, though it also took a slight dovish turn by dropping a reference to being cautious on further easing.

The Reserve Bank of Australia (RBA) ended its April policy meeting by maintaining cash rates at 4.10%, having eased by 25 basis points in February.

The board noted core inflation was cooling in line with its forecasts, but it needed to be confident the trend would continue.

Most analysts expect core inflation will ease back into the RBA’s 2-3% target band this quarter, allowing the central bank to ease again.

Markets imply around a 70% chance the RBA will cut to 3.85% at its next policy meeting on May 20 and foresee a relatively shallow easing cycle to 3.35% by year-end.

“Barring any upside surprises in the Q1 inflation figures due by the end of this month, it seems very likely that the Bank will deliver another 25bp rate cut at the next meeting in May,” said Marcel Thieliant, head of Asia-Pacific economics at Capital Economics.

Australia, New Zealand dollars slip ahead of US inflation test

“We think the Bank will cut by only another 50bp,” he added. “But given that the recovery in consumption looks a bit more sluggish, the risks are tilted towards more loosening if inflation remains as soft as it has been recently.”

Local data showing retail sales rose a modest 0.2% in February suggested consumer demand was tepid and would not be an impediment to further easing.

“There is nothing here to feed RBA concerns the consumption pickup could outpace their forecasts,” noted Taylor Nugent, a senior market economist at NAB.

The RBA also highlighted the potential fallout from U.S. President Donald Trump’s tariff plans which could hit global economic growth and the demand for Australia’s commodities.

Fears the tariffs would cover a wide range of countries hurt risk sentiment on Monday and sent the Antipodeans reeling.

The Aussie was last holding at $0.6252, having fallen 0.6% the previous session to a one-month low of $0.6217. Support lies at the March trough of $0.6185 with resistance around $0.6330. Three-year bond futures ticked up 1 basis point to 96.320.

The kiwi dollar was flat at $0.5674, after also losing 0.6% overnight to as low as $0.5646. Support is down at $0.6683, with resistance at $0.5762.