AUD/NZD refreshes four-month low below 1.0700 after RBA continues steady policy

• AUD/NZD drops and prints a fresh four-month low at 1.0680 as RBA kept doors open for further interest rate hikes.
• The RBA kept interest rates steady at 4.10% as expected by market participants.
• On Wednesday, the RBNZ is expected to keep interest rates steady at 5.5%.

The AUD/NZD pair printed a fresh four-month low at 1.0680 on Tuesday after the Reserve Bank of Australia (RBA) announced an unchanged interest rate decision. The maintenance of a status quo from RBA policymakers was anticipated by market participants.

In August, the Australian Consumer Price Index (CPI) accelerated to 5.2% on a monthly basis from the 4.9% reading in July due to rising fuel prices. The impact of higher energy prices was limited as RBA policymakers considered core inflationary pressures for policymaking. This allowed the RBA to keep interest rates unchanged at 4.10% for the fourth time in a row.

As inflation is more than double the required rate, RBA Governor Philip Lowe left doors open for further policy tightening. RBA Lowe cited that inflation has come down from its peak but is still too high and the achievement of price stability in a reasonable timeframe is the board’s priority.

Last week, a poll from Reuters showed that the RBA will keep interest rates unchanged but one hike of 25 basis points (bps) is possible, which will push interest rates to 4.35%.

About the economic outlook, RBA Lowe remains upbeat citing that inflation is coming down, the labor market remains strong and the economy is operating at a high level of capacity utilization.

On the New Zealand front, investors await the monetary policy from the Reserve Bank of New Zealand (RBNZ), which will be announced on Wednesday. RBNZ Governor Adrian Orr is expected to deliver a neutral interest rate policy. The next monetary policy meeting in November is going to be crucial as policymakers will have inflation figures for the July-September quarter.