The Reserve Bank of Australia’s aggressive policy approach strengthens the Australian dollar, which causes the AUD/USD ratio to rise. Analysts observe that the RBA upheld a hawkish stance, with Governor Bullock cautioning that the bank would take action if necessary. US Retail Sales declined by 0.6% in July, which has dampened market expectations regarding forthcoming Federal Reserve rate increases. AUD/USD has appreciated for the second consecutive day, currently trading near 0.7090 during the Asian session on Monday. The pair appreciates as the Australian Dollar gains on the hawkish policy stance by the Reserve Bank of Australia. Analysts emphasise that the Reserve Bank of Australia upheld a resolute stance, observing that “the statement was hawkish” and that Governor Michele Bullock “declared the bank would not hesitate to act if needed,” highlighting the RBA’s preparedness to implement further policy tightening if inflation does not decrease as anticipated.
Rabobank’s strategy team expresses scepticism regarding the conclusion of the RBA’s tightening cycle, emphasising that recent remarks from Governor Bullock do not entirely rule out the possibility of additional measures. In light of the current economic conditions, the bank emphasises its scepticism regarding the adequacy of the existing policy stance, stating that it “continue to expect one more hike later this year.” The AUD/USD pair appreciates as the US Dollar declines amid weaker-than-expected US economic data and shifting central bank expectations. The US Census Bureau reported on Friday that retail sales declined by 0.6% month-over-month in July, following a 0.2% increase in June, and falling short of the market consensus of 0.1% growth. On an annual basis, Retail Sales increased by 5.0% in July, a decline from the 6.8% observed in the preceding month.
Traders have diminished their expectations for Federal Reserve rate increases in light of a series of weaker US economic indicators, encompassing CPI, PPI, and Retail Sales. Markets are currently assigning a probability of 33.1% to a rate hike next month, a decrease from the 44% observed last week, as indicated by the CME FedWatch tool. Fed’s Goolsbee delivered a notably softer tone on inflation, with the FXS Speechtracker score at 4.6/10, well below the 6.8/10 historical average and signalling a less hawkish stance relative to the established baseline. Emphasis on “a little bit better” inflation readings, the transitory nature of tariff and oil shocks, and confidence that inflation can move back toward 2% if these fade indicates a growing comfort with the disinflation trend, even as the US economy is characterised as “steady.”
Overall, the message leans slightly dovish, subtly reducing the threshold for potential easing should the data align favourably. The FXS Fed Sentiment Index decreased by 2.36 points to 134.61, suggesting a slight dovish adjustment in the perceived policy stance following the comments. However, with the index still well above the 100 neutral line, the Fed remains firmly in hawkish territory despite the pullback, suggesting the Dollar retains underlying policy support even as markets price a slightly less aggressive stance.
