Ella 
The Australian dollar fell sharply following the Reserve Bank of Australia’s decision on Tuesday to keep interest rates at 4.35%. Investors had tended to expect the Reserve Bank of Australia to take a more hawkish stance, especially after last week’s inflation data beat expectations. However, the Reserve Bank of Australia acknowledged that recent progress in curbing inflation has stalled and maintained its forward guidance that “possible measures will not be ruled out.”
Inflation surged in Australia in March, contrary to market expectations of stagnation. In addition, Reserve Bank of Australia Governor Bullock emphasized the importance of remaining vigilant against inflation risks. Bullock believes that the current interest rate policy is appropriate and can guide the inflation rate back to the target range of 2%-3% in the second half of 2025 and return to the midpoint in 2026.
The U.S. Dollar Index (DXY), which measures the dollar’s performance against six major currencies, rose on expectations that the Federal Reserve (Fed) will “keep interest rates at higher levels for longer.” In addition, hawkish speeches from Minneapolis Fed President Neel Kashkari also boosted the US dollar, thus suppressing the AUD/USD.
Fed official Neel Kashkari said the current expectation is that interest rates will remain stable for a considerable period of time. According to Reuters, although the probability of raising interest rates is slim, it is not completely unacceptable.
