Monthly Wrap: AUD – Australian dollar plunges as RBA hints at rate hike slowdown

Key takeaways:

• Australian dollar plummets as RBA signals rate hike pause
• Upbeat mood helps ‘Aussie’ recoup some losses
• AUD monthly lows: £0.54, $0.65, €0.61, NZ$1.06, CA$0.90
• AUD monthly highs: £0.56, $0.67, €0.63, NZ$1.08, CA$0.93

The Australian dollar faced adversity in early March after the Reserve Bank of Australia’s (RBA) interest rate decision saw the currency nosedive.

The RBA hiked rates by 25bps, as expected, but it signalled that future decisions would be ‘data driven’. Markets took the comments by RBA Governor Philip Lowe as indicators of a slowdown in policy tightening.

Cooler Chinese inflation figures added to AUD’s downturn, due to the currency’s status as a proxy for the Chinese economy. February’s inflation eased to 1%, prompting fears of a sluggish economic recovery. Nevertheless, the ‘Aussie’ was cushioned by speculation of further economic stimulus from the Chinese government.

AUD saw a boost later in March after upbeat employment data. February’s unemployment rate dropped to 3.5% whilst employment rose by a more-than-forecast 64,600. The data also drove fresh bets on at least one more rate hike from the RBA.

The release of the RBA’s latest meeting minutes dampened expectations of further hikes and kept pressure on AUD, however. The minutes for the March meeting revealed further hints of an interest rate hike pause.

The ‘Aussie’ dollar faced mixed movement in late March. Unexpected contractions in Australia’s services and manufacturing sectors dented AUD, while an upbeat market mood supported the risk-sensitive currency.

Looking ahead, the RBA’s interest rate meeting in early April is the focus for AUD investors. The ‘Aussie’ could plunge if the central bank leaves interest rates unchanged, as forecasters are currently predicting.

High-impact Chinese data may also affect the Australian dollar. China’s industrial production in March and first-quarter GDP growth are both forecast to have risen. This upbeat data could lift AUD.

At the end of April, an expected decline in Australian inflation could put pressure on AUD by further dampening RBA rate rise bets.