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The U.S. dollar was subdued and the Australian dollar extended gains for a second straight day, which could be attributed to lower U.S. bond yields. In addition, hawkish comments from Reserve Bank of Australia Governor Bullock provided support for the strength of the Australian dollar, which in turn supported the AUD/USD.
The Reserve Bank of Australia left the official cash rate (OCR) unchanged at 4.35% on Tuesday, a decision that was widely expected. At the press conference after the interest rate decision, Reserve Bank of Australia Governor Bullock did not make a clear position on future policy actions, neither raising possible options nor ruling out possible options. However, as the Australian economy is experiencing a cost of living crisis, RBA policymakers have limited room to further raise interest rates.
The U.S. dollar index (DXY) continues to fall despite hawkish comments from Federal Reserve Chairman Powell. Powell tempered expectations of a rate cut and stressed the importance of keeping a close eye on inflation approaching its core 2% target.
On Tuesday, Cleveland Fed President Loretta Mester said the Fed may consider cutting interest rates later this year. However, Mester cautioned against acting too hastily. In addition, Philadelphia Fed President Patrick Harker last week expressed support for the Fed’s decision to keep interest rates steady, citing the outlook for further declines in inflation.
