The Australian dollar traded in a low range against the US dollar during the Asian session on Tuesday, with the exchange rate currently hovering around 0.6865.
The minutes from the Reserve Bank of Australia's June meeting revealed that the decision to keep the cash rate on hold at 4.35% was not a sign that the inflation battle had been won. Instead, the board opted for a pause to allow more time to assess the transmission of previous tightening measures and the economic impact of recent oil supply disruptions in the Middle East.
The board unanimously agreed that holding rates steady was the most appropriate path to balance inflation and employment goals amid a highly uncertain environment. The minutes clearly signaled that the pause was for observation, not a policy pivot, and emphasized that further interest rate increases remain possible if economic data warrants such action.
Inflation Remains the Primary Concern with Persistent Price Pressures
The minutes reiterated that inflation remains the central bank's core concern. Board members noted that inflation remains significantly above the board's target band, with staff continuing to project a rise in underlying inflation for the June quarter.
Pressures from both labor and non-labor costs remain widespread, necessitating that monetary policy "needs to remain restrictive to soak up the current excess demand through a period of below-trend growth." While acknowledging that Australian financial conditions have become "somewhat restrictive," the board judged it was still too early to assess the full cumulative effect of policy tightening since February. This indicates the RBA remains cautious about the pace and extent of inflation's decline, not ruling out the possibility that inflation could prove more persistent than expected.
Middle East Situation a Key Variable, Supply Shocks May Prolong Inflation
A significant portion of the board's discussion focused on developments in the Middle East. While members acknowledged that "potential paths to a resolution of the conflict are now in sight," they also warned that even with a durable peace, the easing of commodity supply bottlenecks would take time.
Consequently, the board judged that the Middle East conflict still presents "a significant upside risk to inflation and a downside risk to growth." They cautioned that persistently high oil prices could continue to influence firms' pricing decisions and wage-setting behavior even after fuel prices decline. This assessment suggests that the pass-through of external supply shocks to inflation could be more prolonged than markets anticipate.
Forward Guidance: Tightening Cycle Not Necessarily Over, Patience Does Not Equal a Pivot
The minutes explicitly stated that the tightening cycle may not be over. Board members saw value in "using the space created by previous decisions" to evaluate the economic adjustment but reaffirmed that the board will "do what is necessary" to achieve price stability and full employment, "including by increasing the cash rate target if required."
This language reinforces the market's interpretation of the June pause—it is not the start of a policy shift but a "wait-and-see" strategy chosen by policymakers amid high uncertainty. The minutes also stressed that economic data released in the coming months will determine whether another rate hike is necessary.
On the daily chart, the AUD/USD pair remains within a medium-term bearish downtrend channel. The price has been declining steadily from its April high of 0.7277, finding minor support and consolidation after recently testing a low of 0.6864. The moving average system shows a full bearish alignment, with the MA20 (0.7000), MA50, and MA100 forming layers of resistance from top to bottom. The price continues to trade below all short and medium-term moving averages, finding only weak support from the long-term MA200 (0.6860), confirming a clear bearish trend.
In terms of indicators, the MACD lines are below the zero line, with the DIFF at -0.0064 below the DEA at -0.0050, and the green histogram continuing to expand, indicating ongoing bearish momentum. The RSI reading is 26.91, approaching the oversold territory of 20, suggesting a potential for a short-term technical rebound from oversold conditions, but no effective bullish divergence reversal signal has yet appeared.