Commerzbank’s Volkmar Baur highlights that the Reserve Bank of Australia delivered a second rate hike this year, but AUD/USD remains below 0.71 and choppy. A narrow 5–4 vote and stagflation concerns mean further tightening is possible but not the base case, and any additional hike is not expected to support the Australian Dollar sustainably.

Narrow hike and stagflation concerns

"At its monetary policy meeting this morning, the Reserve Bank of Australia raised its key interest rate for the second time this year. We had expected the RBA to hold off until its next meeting, but according to a Bloomberg survey, most analysts had anticipated a hike, and the market had already priced this in at a 60% probability."

"However, the Australian dollar’s reaction is not necessarily what one would expect following an interest rate hike. At present, AUD/USD remains below 0.71 and is fluctuating between gains and losses."

"One reason for this, which is being cited frequently this morning, is the central bank’s narrow decision. The Monetary Policy Board voted 5 to 4 in favour of a hike by the narrowest of margins, and for the moment it is not yet clear who cast the dissenting votes."

"Although Governor Michelle Bullock made it clear in her press conference that the dissenting votes were also in favour of a hike and that the only issue was the timing of the hike, some still seem to interpret this as making further interest rate hikes less likely."

"These interest rate decisions are not being made on the basis of a strong economy, but amidst a stagflationary environment. Governor Bullock also seemed to hint at this when she said that whilst she did not want to trigger a recession, it might be necessary under certain circumstances."

"All in all, the takeaway from today’s meeting is that a further interest rate hike by the RBA is certainly within the realm of possibility, even if it is not our main scenario. However, we continue to assume that should a further hike occur, it is unlikely to have a positive effect on the AUD."

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