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Australia's Dollar Gains After Central Bank Unexpectedly Leaves Rates Unchanged, Says Mitsubishi UFG

BY MT Newswires | ECONOMIC | 07/08/25 06:46 AM EDT

06:46 AM EDT, 07/08/2025 (MT Newswires) -- The top performing G10 currency overnight Monday was the Australian dollar (AUD), highlighting that the latest United States trade policy developments haven't "significantly" undermined global investor risk sentiment, said Mitsubishi UFG.

Market participants remain optimistic that trade deals will eventually be reached to help dampen the impact of higher tariffs, wrote the bank in a note to clients.

Domestic developments have also been favorable for the Australian dollar overnight Monday after the Reserve Bank of Australia unexpectedly decided to leave rates on hold at 3.85%, stated MUFG. The Australian rate market had been almost fully pricing in another 25bp rate cut as of Monday so it was a big surprise to leave rates on hold.

The yield on the two-year Australian government bond initially jumped by almost 10bps after the policy decision, which helped to lift AUD/USD up to a high of 0.6558 from around 0.6510 before the announcement, pointed out the bank. The decision to leave rates on hold wasn't unanimous. There were three dissenters who voted for the rate cut today while six members voted to leave rates on hold.

In the accompanying press conference, Governor Michele Bullock emphasized that Tuesday's decision was more about "timing" rather then direction, indicating that the RBA will continue to lower rates in a "sensible, cautious way," added MUFG. The RBA wants to be more confident that it has "nailed" inflation and is waiting to confirm that inflation is sustainably on track to its 2.5% target.

As a result, the RBA judged that it could wait for more information to confirm inflation, added the bank. The next RBA policy meeting is on Aug. 12 and by that time, the Australian consumer price index report for Q2 will have been released, which, without any major upside surprises, should allow the RBA to resume rate cuts next month.

MT Newswires does not provide investment advice. Unauthorized reproduction is strictly prohibited.

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