The RBA held interest rates steady, but was unable to prevent the decline of the AUD.

The Reserve Bank of Australia (RBA) maintained its cash rate at 4.35%, holding it steady at a 13-year high for the past 13 months.

While many of the RBA’s counterparts have opted to ease monetary policy at various times this year, including significant cuts by the nearby Reserve Bank of New Zealand (RBNZ), signalling a decline in inflation, Australian consumer inflation stood at 2.1% for September and October (the latest data available). However, this is still insufficient for the RBA, which pointed out that the core inflation rate of 3.5% remains above its target of 2.5%.

Despite this, the RBA has expressed increasing confidence that inflation will eventually return to the target, suggesting that it may be open to policy easing in the near future. The weak economic growth further supports this stance, as GDP growth slowed to just 0.8% last year. Excluding the possibility of a double dip, this is the slowest pace since 1991, when the economy was last in a natural recession.

Following the news of the rate decision, the AUD briefly weakened, dropping back to its local lows of the past three trading sessions, falling below 0.6400. While traditional expectations would point to a stronger Aussie when other central banks are cutting rates, in Australia’s case, market participants are more focused on the economic outlook. The anticipated tightening of monetary policy could potentially dampen economic growth further, which is influencing the currency.

At 0.6400, the AUDUSD is trading near the lower end of its range over the past two years, having lost about 8% over the last 10 weeks. Technically, this marks a downturn from the 200-week moving average. Moving forward, it’s crucial to monitor how the pair behaves in the upcoming weeks. A breach of long-term support could pave the way for a drop to 0.55, while holding above current levels could set the stage for a rebound towards the 0.70 region.