As expected, the RBA held the cash rate steady at 2.00% at its 4 August meeting. However, some of the comments arising from Glenn Stevens’ statement pushed the currency higher on the basis that future rate cuts are less likely. The statement accompanying the announcement removed the previously used reference about the AUD that “further depreciation seems both likely and necessary”, suggesting the RBA is comfortable with the level of the dollar and implying further rate cuts to get the dollar lower are not necessary. HSBC’s economist, Paul Bloxham said, “The RBA typically does not cut rates once the unemployment rate has peaked.”
Westpac’s Bill Evans thought the change in the governor’s statement to be a signal the bank is no longer concerned about adding to upward pressure on the currency by having a wide gap between US and Australian interest rates. “A key motivation behind cutting rates would be to further lower the AUD. That motivation now seems to have dissipated,” he said. Cash rate futures adjusted for the decline in the likelihood of future cuts but the markets are still betting rates will fall any time from late this year. Futures markets indicate a 68% chance of a December rate cut and an 86% chance of a rate cut by April.