The Reserve Bank of Australia (RBA) implemented a widely anticipated 25 basis point rate hike, bringing the policy rate to 4.35% [1]. Despite the initial hawkish impression from the 8-1 vote in favor of the hike, Governor Bullock's dovish remarks during the press conference tempered optimism among Australian Dollar (AUD) bulls [1]. TD Securities strategists Prashant Newnaha and Alex Loo noted that the Governor's tone suggested a preference to pause further rate increases, which has constrained near-term upside for the AUD/USD pair [1].
TD Securities maintains a bullish bias on the AUD, citing the possibility that the RBA could hike again in August due to persistent inflation concerns, even as economic slowdown worries persist [1]. However, they argue that a move above the 0.72 level in AUD/USD would likely require broader US Dollar (USD) weakness, which may be difficult to achieve in the near term given recent hawkish Federal Open Market Committee (FOMC) dissents and resilient US economic data [1].
Instead of expressing their constructive AUD view through AUD/USD, TD Securities prefers positioning in AUD/NZD, targeting a climb towards 1.24 and recommending buying dips in the pair [1].
CONCLUSION
The RBA's expected rate hike was overshadowed by Governor Bullock's dovish tone, limiting immediate upside for AUD/USD. While TD Securities remains bullish on the AUD, they see better opportunities in AUD/NZD rather than AUD/USD, given current US Dollar strength and RBA's cautious stance.