Australian dollar supported as RBA sticks to hawkish stance

The Australian dollar held steady on Thursday after the country's central bank stuck to its hawkish guidance on interest rates despite soft economic numbers, helping to offset risk aversion in global markets.

Reserve Bank of Australia (RBA) Governor Michele Bullock used a speech to reiterate that a rate cut was unlikely in the near term given stubborn inflationary pressures.

She also played down data showing the economy barely grew in the June quarter, saying the level of demand was still running ahead of supply.

"Despite sluggish growth, the economy is still operating at around its full capacity, because the supply-side is weak," said Paul Bloxham, head of Australian economics at HSBC. "The constrained supply-side means that, despite sluggish GDP growth, inflation is still too high." "Our central case is that the RBA will be on hold through 2024, with cuts not likely beginning until Q2 2025."

Bullock added that recent figures showing consumer price inflation had slowed to 3.5 per cent in July, were just one number and policymakers needed to see the full report for the third quarter before deciding on rates. The third-quarter report is not due until Oct. 30.

Markets still imply around a 42 per cent chance of a rate cut in November, while the probability of a move in December held at 90 per cent.

Investors are wagering on an early move in part because the US Federal Reserve looks certain to cut at its policy meeting on Sept. 18, and perhaps by half a point given weakness in recent labour data. That would leave the RBA as one of the few major developed world central banks not easing policy.

The RBA next meets on September 24, but the market sees almost no chance of an easing at that time.

The prospect of steady policy helped keep the Aussie flat at $0.6719, having nudged up 0.2 per cent overnight as the US dollar eased broadly. Support lies around $0.6685 and the 200-day moving average at $0.6616.

The kiwi dollar stood at $0.6197, after also adding 0.2 per cent overnight. It had found support at $0.6186, with more down at $0.6129, while resistance lay at $0.6216.

Both lost ground to the safe-haven Japanese yen as worries about US and global growth unsettled financial markets. The Aussie was stuck at 96.54 yen, having retreated from a top of 99.84 in just three sessions.