The Reserve Bank of Australia (RBA) kept its cash rate at 3.6%, with Governor Bullock ruling out near-term cuts, prompting the Australian Dollar (AUD) to recover after initial weakness and fueling market speculation of a possible rate hike by June, Commerzbank's FX analyst Volkmar Baur notes.

AUD initially weak, recovers on Bullock’s comments

"As expected, the RBA left its cash rate unchanged at 3.6% this morning. In an initial reaction, the Australian dollar nevertheless showed some weakness because the press release initially sounded as if the central bank was leaving the door open for a possible further interest rate cut. However, in the subsequent press conference, Governor Michelle Bullock made it clear that this was a very unlikely scenario."

"As a result, the market has begun to speculate about the timing of a possible first interest rate hike. While yesterday the market was still pricing in such a move for August, it is now already pricing it in for June. As a result, the AUD was able to recover during the press conference and is now slightly up against the US dollar."

"Looking ahead, we share the concern about inflation, which has consistently exceeded expectations in recent months and was also the reason why we had already given a more cautious outlook towards further interest rate cuts. On the other hand, we continue to assume that part of the recent rise in inflation should be temporary. We therefore continue to be skeptical about the market's reaction. This time, however, we lean more dovish than the market and do not expect interest rates in Australia to rise any time soon."