The Australian dollar rose against most major currencies during Tuesday’s trading after a widely expected decision from the central bank regarding monetary policy.
The Reserve Bank of Australia (RBA) on Tuesday kept the benchmark interest rate at 3.6%, in line with expectations, at a time when inflation continues to rise, recording its highest level in more than a year.
The decision came in line with the expectations of economists polled by Reuters, after data earlier in September showed an annual inflation rate of 3% in August, the highest since July 2024, driven by rising housing, food, and alcohol prices.
The bank indicated in its statement the persistence of inflationary concerns: “The recent data, although partial and volatile, indicate that inflation in the third quarter may be higher than expected in the August monetary policy statement.”
It added that private domestic demand is recovering, while there are indications that inflation may persist in some sectors.
The bank had lowered interest rates by 75 basis points since the beginning of the year, after keeping them stable at 4.35% since November 2023 as part of its efforts to contain inflation.
The bank confirmed that the economic outlook remains unclear amid local and international developments: “The stronger-than-expected data on growth and inflation may indicate that households have become more comfortable with spending, but this consumption growth may not continue, especially if concerns about external developments increase.”
For her part, Governor Michele Bullock said earlier this month before parliament: “The global environment is characterized by a high degree of uncertainty and unpredictability, but monetary policy is well placed to respond if it appears that international developments could have a material impact on the Australian economy.”
In a note issued after the decision, Harry Murphy Cruise, head of economic and global trade research at Oxford Economics, said the bank “has effectively succeeded in its battle against inflation.”
He expected core inflation (the trimmed mean measure) to decline to 2.6% in the third quarter of 2025, paving the way for a new cut in November. The Reserve Bank of Australia targets an inflation range of 2% to 3%.
He also added that an additional cut may occur in the first quarter of 2026, as core inflation approaches the middle of the target range, but with an expected rise in the unemployment rate, which may require additional monetary support.
On the growth front, the Australian economy exceeded expectations in the second quarter, recording the fastest pace of expansion since September 2023, giving the bank room to keep interest rates focused on containing inflation.
GDP rose by 1.8% year-on-year, compared with expectations of 1.6% in a Reuters poll, and up from 1.3% in the previous quarter. On a quarterly basis, the economy grew by 0.6%, exceeding expectations of 0.5%.
Data from the Australian Bureau of Statistics showed that growth was driven by domestic spending, including household and government spending.
In trading, the Australian dollar rose against its US counterpart at 19:43 GMT by 0.6% to 0.6617.
Canadian dollar
The Canadian dollar stabilized against its US counterpart at 19:43 GMT at 0.7185.
US dollar
The US dollar index fell at 19:33 GMT by 0.1% to 97.8 points, recording a high of 98.05 points and a low of 97.6 points.
Negotiations are still ongoing between the White House and Congress to prevent a federal government shutdown, which will of course negatively affect the economy and markets.
House Speaker Mike Johnson said he doubted the possibility of reaching an agreement before the end of the day to avoid a shutdown, while Vice President JD Vance said the government is on track to shut down after a failed meeting between Donald Trump and party leaders.
Government data released today showed that job vacancies in the US stabilized at 7.2 million in August, compared with expectations of a decline to 7.19 million.
Data released by the Conference Board today showed that US consumer confidence fell to 94.2 points in September, the lowest since April, compared with 97.8 points in August.
