Australian Dollar Holds Steady#
The Australian dollar showed little change on Tuesday after the Reserve Bank of Australia (RBA) raised interest rates by 25 basis points, bringing the rate to 4.35%. This marks the third consecutive increase, matching the peak reached during the inflation surge of the COVID-19 pandemic.
Rate Hike Details#
In its May meeting, the RBA's policy board voted 8 to 1 in favor of the rate hike, a notable shift from the previous month when the vote was much closer at 5-4. The central bank indicated that with three rate increases now in place, "monetary policy is well placed to respond to developments," suggesting they are prepared to adjust further if necessary.
Current Market Conditions#
As of now, the Australian dollar is trading at $0.7163, which is a 0.5% decrease from the previous session. The currency faces support at $0.7102 and resistance at $0.7228. Market analysts are currently estimating a 20% chance of another rate increase in June, with expectations that rates could rise to 4.60% by September, the highest level since late 2011.
Inflation and Economic Outlook#
The RBA has also updated its inflation forecasts for this year, predicting a peak near 5%. However, it has lowered its expectations for economic growth and employment. The central bank pointed to rising oil prices, influenced by geopolitical tensions related to the U.S.-Israeli conflict with Iran, as a contributing factor to its inflation outlook. Recent escalations include Iran's attacks on a UAE port and several ships in the Strait of Hormuz, following U.S. Navy efforts to assist vessels in the area.