The RBA has ended the cycle of interest rate hikes. AUD/USD down

This is probably the end of tightening monetary policy in Australia. Such conclusions can be drawn after the meeting Reserve Bank of Australiaon which the bank did not change interest rates for the second consecutive month.

The RBA's decision took the market by surprise

At today's meeting, the Reserve Bank of Australia (RBA) decided to leave interest rates unchanged. This means that the main rate remained at 4,10% after it was increased 2022 times since May 12. This is also the second consecutive month that the RBA left interest rates unchanged. There are many reasons for the fact that the central bank has just ended the cycle of tightening monetary policy.

The RBA's decision took the market by surprise. Analysts were divided in their assessment of what decision the central bank would take today, but most of them (55 percent) pointed to an increase in interest rates by 25 basis points. Only after such an increase did they expect the end of the cycle and return to reductions in the cost of money after the first quarter of 2024.

Today's decision was "priced" in a slightly different way by the futures market, where the scales shifted towards no hike. There was a 60% chance of this happening.

The Reserve Bank of Australia, as can be concluded after reading the communiqué accompanying today's decision, has not yet closed the door to further increases. This, however, depends on the incoming data. And these recently argue for the end of monetary policy tightening. And it probably will.

One of the arguments is the recent faster-than-expected drop in inflation in Australia. In the second quarter of this year CPI inflation in this country fell to 6 percent. year-on-year from 7 percent. in the first quarter, while the market expected it to fall to 6,2 percent.

AUD / USD exchange rate reacted to the decision of the RBA with a drop from around 0,67 to 0,6658, thus setting new daily lows.

AUD/USD 5-minute chart. Source: Tickmill