The Australian dollar surged after the Reserve Bank of Australia held monetary policy steady on Tuesday and kept its benchmark rate unchanged at 2 per cent following its April meeting. The RBA previously cut rates twice in 2015.
Most analysts had expected the RBA to leave the rate on hold despite growing pressure on the central bank to act due to the Australian currency perceived as being overvalued.
Noting the recent strengthening of the Australian dollar to seven-month highs above $0.76, the board said in its statement today:
“Under present circumstances, an appreciating exchange rate could complicate the adjustment under way in the economy.”
The Australian currency was down 0.4 per cent at $0.7573 before the RBA decision, with data this morning showing Australia’s services sector swung back into contractionary territory in March and the trade deficit widened in February. AUDUSD surged to $0.7630 right after the RBA announcement at 4:30am GMT.