RBA Holds Hawkish Bias, Keeps Rates Steady Amid Inflation Concerns

The Reserve Bank of Australia (RBA) kept interest rates steady at 4.35% in its latest decision, but Governor Sandra Bullock's hawkish tone sent a clear signal that inflation risks are skewed to the upside.

At the press conference following the decision, Governor Bullock revealed that the RBA had discussed the possibility of a rate hike, which suggests that the central bank is still concerned about inflation. She emphasized the 'somewhat restrictive' nature of current monetary policy, which could imply that future hikes are less likely.

However, ING's FX team does not see this as a sign of imminent rate cuts and instead believes that the AUD/USD exchange rate will rise to 0.73 by year-end. The team notes that short-dated Australian yields reversed higher after the decision, which could indicate increased market expectations for future rate hikes.