Above: File image of Michelle Bullock. Image © RBA
The Australian Dollar slumped after RBA Governor Bullock declined to signal an August hike.
The Australian Dollar is the day's biggest loser in the G10 space after a keenly awaited speech from Reserve Bank of Australia Governor Michele Bullock gave rate hike bets nothing to feed on.
"On balance, the market assessed Bullock's comments imply the RBA is less likely to raise interest rates in the near term," says Kristina Clifton, FX strategist at Commonwealth Bank of Australia.
The Pound-to-Australian Dollar rate rises to 1.9072, lifting from the vicinity of its 100-day moving average, suggesting some support might be emerging for the pair.
"AUD/USD fell around 0.3% following comments from the Reserve Bank of Australia's Governor Michele Bullock. Bullock left the door open for further interest rate hikes if needed. But she also noted the economy was slowing as expected and that it would take time for the full impact of earlier interest rate hikes to emerge," says Clifton.
Balanced, Not Hawkish
Delivering the annual Anika Foundation address in Sydney, Bullock kept the tightening option formally alive, saying the Board "is prepared to act as required to achieve its mandate, including by increasing the cash rate further if needed."
But the body of the speech leaned on patience rather than urgency.
Bullock noted that monetary policy operates with a lag and that the full effects of this year's cash rate increases are yet to be felt, while demand growth is moderating broadly as the RBA expected.
Above: AUD performance on July 28.
She also conceded the housing market has eased by more than the bank anticipated in May, and that the labour market has softened somewhat more than expected, with the unemployment rate rising by more than forecast.
The line that mattered most for markets was her framing of the road ahead: "A key question in the period ahead is whether the tightening in monetary policy earlier in the year is sufficient" to bring inflation sustainably back to target.
A central bank asking whether it has already done enough is not a central bank teeing up its next move, and traders repriced accordingly, even with headline inflation still running at 4% and, as Bullock acknowledged, above target before the recent oil shock hit.
Positioning Punished
For rates watchers, the market reaction says as much about positioning as about policy.
"The annual Anika speech has been a platform where important messages can be conveyed, driving a lot of focus on this speech from RBA Governor Bullock. Overall the message was balanced, and the rally in rates since reflects unwind of the paid pre-positioning, from those hoping for a smoking gun on an August hike," says Stephen Spratt, strategist at Société Générale.
In other words, the speech didn't kill the hiking cycle; it simply refused to accelerate it, and a market leaning hard on the hawkish side was forced to step back.
The Next Test Comes Within Hours
The reprieve for Australian Dollar bears may be brief, because Bullock herself flagged the schedule: June CPI data land on Wednesday, and the bank's fully updated forecasts follow in the August Statement on Monetary Policy on 11 August.
A hot inflation print would put the August hike conversation straight back on the table and likely reclaim much of today's Aussie underperformance.
In the meantime, the bounce in Pound-Australian Dollar leaves the pair trading well above the latest institutional consensus forecasts, which see the exchange rate holding a lower range through to early 2027.
