RBA Holds Rates at 4.35%, but Hawkish Tone Leaves Aussie Dollar on Edge

The Reserve Bank of Australia (RBA) made its expected decision to keep the cash rate at 4.35% in a unanimous move, but Governor Bullock's emphasis on upside inflation risks has left the Australian Dollar sensitive to incoming data and RBA communications.

While the Statement and revised forecasts implied a less hawkish stance than anticipated, Governor Bullock stressed that another hike is possible if inflation risks materialize. This hawkish tone in the Press Conference contradicts the Bank's central forecast, suggesting that the bar for a follow-up RBA hike this year has been lifted.

The RBA's forecasts indicate trimmed mean CPI prints of 0.8% q/q for both Q3 and Q4, implying that the Bank may not have the wiggle room it needs to get inflation back to target in a reasonable time frame.