Forex Market: AUD/USD off 1 1/2-month high as RBA pauses rate hiking cycle

AUD/USD retreated from a 1 1/2-month high on Tuesday, as the Reserve Bank of Australia held borrowing costs steady after delivering 10 consecutive rate hikes.

The RBA left its cash rate without change at 3.60% at its April policy meeting earlier on Tuesday, in line with market expectations.

This marked the first pause in the central bank’s tightening cycle since it began hiking interest rates in May 2022.

“The decision to hold interest rates steady this month provides the board with more time to assess the state of the economy and the outlook, in an environment of considerable uncertainty,” RBA Governor Philip Lowe said in a statement.

Lowe also said that Australian economic growth had slowed and expansion over the next few years was expected to be below trend.

“(The RBA) seem content that inflation has peaked and opted to not pull the hiking trigger ahead of the quarterly inflation report in a few weeks,” Matt Simpson, senior market analyst at City Index, was quoted as saying by Reuters.

“Unless the RBA are presented with a surprise uptick on the quarterly inflation print, I think the RBA will be happy to sit with 3.6% for the next two to three months.”

Meanwhile, the US Dollar regained certain ground against a basket of major peers after a slump on Monday that was triggered by weak US manufacturing data.

A survey by the Institute for Supply Management showed yesterday that US manufacturing activity had contracted to a level unseen in almost 3 years in March, as new orders continued to decrease. All sub-indices of the Manufacturing PMI were reported below the key 50.00 mark for the first time since 2009.

As of 8:42 GMT on Tuesday AUD/USD was retreating 0.72% to trade at 0.6736. During the early phase of the Asian session the major Forex pair went up as high as 0.6793, which has been its strongest level since February 24th (0.6824).

Bond Yield Spread

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled -94.1 basis points as of 8:15 GMT on Tuesday, down from -93.3 basis points on April 3rd.