The Australian dollar rose broadly on Tuesday against a basket of global currencies, rebounding sharply from a two-week low against its U.S. counterpart, following an unexpected decision by the Reserve Bank of Australia to keep interest rates unchanged at 3.85%.

The decision came as a surprise to the markets, which had confidently priced in at least a 25-basis-point rate cut. A majority of the RBA board members indicated the need for more data to confirm that inflation is trending toward the medium-term target range.

The Price

AUD/USD exchange rate today: The Australian dollar rose against its U.S. counterpart by 0.95% to (0.6559), from todays opening level at (0.6497), with a session low at (0.6491).

On Monday, the Australian dollar fell by 1.0% against the U.S. dollar, marking a third consecutive daily loss and hitting a two-week low at 64.85 cents, as investors increasingly favored the U.S. dollar as one of the most attractive investment opportunities.

Reserve Bank of Australia

In an unexpected move, the Reserve Bank of Australia on Tuesday kept interest rates unchanged at 3.85%, the lowest level since May 2023, defying market expectations for a 25-basis-point cut to 3.60%.

RBA Holds Rates Steady Against Market Expectations

The Reserve Bank of Australia stated it remains cautious about the inflation outlook, adding that six members voted in favor of holding rates steady while three voted against a rare outcome that reflects division within the board.

The board said in a statement: "The Board judged that it could wait for further information to confirm the ongoing path of inflation toward 2.5% on a sustained basis." It added: "Monetary policy is well-positioned to respond decisively should international developments have material effects on activity and inflation in Australia."

The central bank explained that while recent monthly CPI data suggests inflation in the June quarter is likely to be broadly in line with expectations, it was, on the margin, slightly stronger than forecast.

Australian Interest Rates

Following the RBA meeting, interest rate swaps now imply a total easing of 50 basis points by year-end.

Pricing for a 25-basis-point rate cut by the RBA in August has declined from 65% to 50%.

The Reserve Bank of Australia has cut interest rates twice since February to the current 3.85% range as inflation slows toward the 23% target band.