AUD/CAD slips to 2-week low as RBA keeps rates on hold

The AUD/CAD currency pair registered a fresh two-week low on Tuesday, after the Reserve Bank of Australia kept its cash rate unchanged at a 12-year high of 4.35% at its March meeting, as largely expected.

The policy decision came amid indications that Australia’s economic growth has slowed after 425 basis points of interest rate hikes over the past two years.

Inflation in the country continued to decelerate, as goods prices moderated, while the cost of services remained elevated.

The RBA Board said it needed to be certain that inflation was moving towards the 2%-3% target range in 2025 and to the midpoint of that range in 2026.

The central bank watered down its tightening bias.

“The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the Board is not ruling anything in or out,” the RBA said in a statement.

Previously, it had said that “a further increase in interest rates cannot be ruled out.”

Markets are now pricing in 43 basis points of total monetary easing this year, compared with 37 basis points prior to the RBA’s statement.

“We expect the RBA to remove the last remnants of its tightening bias at the June board meeting, before cutting rates by 25bp in August before a second cut in November, which will see the cash rate end the year at 3.85%,” IG analyst Tony Sycamore was quoted as saying by Reuters.

Meanwhile, on the macro data front, CAD traders now shift their focus to the February data on Canadian CPI inflation for more clues over the Bank of Canada’s future interest rate trajectory.

Annual headline consumer inflation in Canada probably picked up to 3.1% in February, according to market consensus, from 2.9% in January – the lowest rate since June 2023.

Earlier this month, the Bank of Canada left its target for the overnight rate intact at 5% and pledged to keep normalizing its balance sheet, with policy makers still concerned about risks regarding the inflation outlook.

Currency Pair Performance

As of 7:49 GMT on Tuesday the AUD/CAD currency pair was edging down 0.41% to trade at 0.8841.

Earlier in the session, the minor Forex pair went down as low as 0.8835. The latter has been the pair’s weakest level since March 6th (0.8828).