RBA Holds Steady Amid Strong Data, AUD/USD Target Remains

The Reserve Bank of Australia (RBA) may not raise interest rates in September despite strong economic data, according to ING Research. The Australian household spending data for July showed a significant 7% year-over-year increase, which could have been seen as an argument for further tightening. However, ING's macro team is still leaning towards a prolonged hold by the RBA.

Markets are currently pricing in a 12 basis point (bp) interest rate hike at the September meeting, but ING expects this to be unwound, limiting gains for the Australian dollar (AUD). The bank's view on AUD/USD remains optimistic, with a target of 0.730 into year-end.

ING notes that their dovish Federal Reserve (Fed) call will have a net-positive impact on the pair even if there is a dovish repricing in the AUD curve. This suggests that the RBA's decision to hold rates may not have as significant an effect on the currency as some might expect.