The Australian dollar rose broadly in European trading on Tuesday against a basket of major currencies, extending its gains for the third consecutive day against its US counterpart and hitting a one-week high, following the hawkish tone from the Reserve Bank of Australia (RBA).

As expected, the RBA decided to keep its cash rate unchanged at 3.60%, the lowest level in almost two and a half years, while voicing caution over elevated inflation during the third quarter of this year.

Price Overview

Todays AUD/USD exchange rate: The Australian dollar climbed 0.5% to 0.6609, the highest in a week, from an opening price of 0.6577, with a session low at 0.6571.

On Monday, the Australian dollar closed up 0.45% against the greenback, marking a second consecutive daily gain, continuing its recovery from a three-week low of 0.6521.

Reserve Bank of Australia

In line with market expectations, the RBA on Tuesday kept its cash rate unchanged at 3.60%, the lowest since April 2023.

The central bank said recent data indicate inflation may prove higher than anticipated in Q3, while the overall economic outlook remains uncertain. It noted that the board deemed it appropriate to maintain caution on monetary policy but remains well-positioned to respond to international developments.

Earlier this year, the RBA cut rates in February, May, and August. With consumer prices running higher than expected, markets now await the full Q3 inflation report due in late October.

Australian Interest Rates

Market pricing for a 25-basis-point rate cut in November fell from 85% to 55%.

Investors await further data on inflation, unemployment, and wages in Australia to reassess the odds of another cut.

Opinions and Analysis

Carol Kong, currency strategist at Commonwealth Bank of Australia, said the RBAs statement carried a relatively hawkish tone, highlighting tensions in the flow of economic data and last weeks upside surprise in inflation.

She added: We still maintain our forecast for a 25-basis-point rate cut in November, but note that it is not guaranteed and depends on the Q3 CPI reading due in late 2025.

Australian Dollar Performance

The Australian dollar has gained more than 6% year-to-date, benefiting from US dollar weakness and stronger risk appetite. In September alone, the AUD rose a more modest 0.6%, after touching its highest level in 11 months two weeks ago.