Reserve Bank of Australia (RBA) Maintains Cash Rate at 4.35%: September 2024 Outlook

In August 2024, the Reserve Bank of Australia (RBA) decided to keep the cash rate unchanged at 4.35%, marking the sixth consecutive meeting without a change. This decision comes as the RBA observes a significant decrease in inflation since its peak in 2022, attributing this trend to the effectiveness of higher interest rates in balancing aggregate demand and supply.

Despite the positive signs, the RBA remains cautious, noting that inflation is still above the midpoint of the target range of 2–3%. The minutes from the August meeting emphasized that maintaining the cash rate at its current level for an extended period could be sufficient to guide inflation back to target levels within a reasonable timeframe. RBA Governor Michele Bullock and her team indicated that monetary policy must remain sufficiently restrictive until they are confident that inflation is sustainably moving towards the target range.

Market reactions to the RBA's announcement were muted, with the AUD/USD pair recovering from a session low of 0.6473 to close at 0.6520, and further appreciating to 0.6572 by the end of the week.

Looking ahead to September, the RBA is expected to maintain its current policy stance, keeping the cash rate at 4.35%. This consistency may lead to a bullish sentiment for the Australian Dollar as the central bank continues its fight against inflation. However, potential shifts in the RBA's approach, particularly if Governor Bullock shows a readiness to ease the restrictive policy, could pose challenges for the Aussie.

In related news, the USD/JPY forecast indicates that the RSI is moving away from the oversold zone ahead of the Bank of Japan's (BoJ) upcoming decisions, while the AUD/USD is on the verge of testing the August highs following the recent Fed rate cut.