AUD declines post RBA’s surprise decision

The Australian dollar experienced a significant decline on Tuesday due to the Reserve Bank of Australia’s decision to keep its key interest rate unchanged at 4.10% at its August meeting. This decision was surprising as higher interest rates tend to strengthen a currency by attracting more foreign capital. The release of sub-par US data on Tuesday slows the Aussies’ decline against its US nameake.

The US ISM Manufacturing PMI for July misses expectations and remains in contraction territory, while JOLTS Job Openings for June fall below the expected level. AUD/USD trades in the 0.66s during the US session. The Australian dollar undoes Monday’s gains after the RBA’s decision to keep interest rates unchanged at its August meeting, citing the need to assess the impact of policy tightening to date and the economic outlook.

The bank did not rule out the possibility of further rate hikes in the future, but that will depend on the data and the evolving assessment of risks. The Australian Dollar has the potential to move down towards its YTD lows at 0.65 if NFP come out higher-than-expected on Friday (supporting the US dollar).

The ISM gauges for the US manufacturing and services sectors will also be under the spotlight, given the data-dependence context highlighted by the Federal Reserve in its last meeting on July 26.