RBA leaves cash rate unchanged but leaves the door open for future hikes if needed

After 10 hikes on the trot and what will no doubt be a relief for mortgage holders the RBA held the official cash rate at 3.60%. The rate decision was fully priced in by the futures markets , so no great surprise on the actual decision , it’s the accompanying statement where investors look for clues as to future RBA actions that will set the short to mid-term tone of the FX and Equity markets.

The statement did leave the door open for further rate hikes with the line “further tightening of monetary policy may well be needed to ensure that inflation returns to target” indicating to the market to not take for granted that Australian rates have peaked just yet.

Though there was a subtle word change from the previous March statement which traders saw as a dovish sign. Tha March statement said “will be needed” which has change to “may well be needed”

A small difference, but a huge clue in the arcane skill of deciphering Central Bank communications. The AUDUSD behaved fairly predictably, a knee jerk drop on the actual rate announcement, followed by a step retrace as the machines and humans took few seconds to decide whether the statement was hawkish or not, before deciding on the “not” and seeing the AUDUSD resume its downtrend.

The ASX 200 index saw a mirror reaction to the AUD with the difference being the initial spike was not retraced, showing that equity traders were happy with the RBA taking their foot off the accelerator , even if it just temporary.

One thing to remember that the AUD  normally trades as a proxy for global growth risk, ebbing and flowing on risk sentiment   any moves from this decision could be short lived as other market forces take over.