In my view, there are two key points to take away from the RBA monetary policy decision today. So, let's just dive right into it.

  1. The RBA upped its inflation forecasts while downgrading its growth projections, continuing to allude to household spending behaviour as a key source of uncertainty. In other words, they are finding it tough to navigate a 'soft landing' per se but recession risks in Australia are still rather moderate as compared to the likes of the US, Europe, and UK.
  2. The rate hike today brings the cash rate to 1.85% and another 50 bps increase in September will take it to 2.35%. That is just shy of the RBA's estimate of neutral around 2.50%. Much like the Fed last week, the RBA is hinting at a subtle slow down in the pace of tightening as they suggested this:

The point on "not being on a pre-set path" getting added to the forward guidance affords the RBA some flexibility in closing the door on the sequence of 50 bps rate hikes (today makes it three consecutive months now). They might still deliver one in September but could very well revert back to smaller moves thereafter.

So, what's next for the aussie?

The subtle shift by the RBA here is quite a symbolic one in my view. It is a similar move to the Fed last week and that shows where we are now in the central bank tightening cycle. We're no longer talking about big and aggressive rate hikes. Instead, it's all about navigating economic risks as interest rates start to hit neutral territory for some central banks.

In that lieu, the aussie may not find much reprieve apart from risk rallies as monetary policy outlook and pricing will start to look towards a slowing down in rate hikes and perhaps rate cuts at some point as the global economy teeters on the brink of a major slowdown.