TD Securities strategists Prashant Newnaha and Alex Loo note that the Reserve Bank of Australia (RBA) delivered a widely expected 25 bps hike to 4.35%, but Governor Bullock’s dovish tone suggests a preference to pause. They argue that a move above 0.72 in AUD/USD likely needs broader US Dollar (USD) weakness, and instead prefer expressing their constructive Australian Dollar (AUD) view via higher AUD/NZD towards 1.24.

AUD upside seen as constrained near term

"The Statement initially could be viewed as hawkish with an 8-1 vote for a 25bps hike, but Governor Bullock's dovish remarks at the press conference poured cold water on AUD bulls."

"We hold onto a bullish AUD bias as the RBA could opt to hike again in August due to inflation concerns which may supersede economic slowdown worries."

"We prefer to express this via higher AUD/NZD, looking to buy dips on the pair and see a climb towards 1.24."

"Today's developments suggest that a recapture of >0.72 level in AUD/USD may require broader USD weakness in the near-term which may prove elusive after hawkish FOMC dissents and US data resilience."

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