The RBA increased the cash rate by 25 basis points but did not make any assurances for further increases.

China's Trade Figures Indicate Weak International Demand

In October, exports declined by 6.4% year-on-year, compared to a 6.2% decrease in September, falling below economists' forecast of a 3.3% decrease. Conversely, imports unexpectedly rose by 3.0% year-over-year in October, contrasting with a 6.2% decline in September, surpassing economists' predicted 4.8% drop. The US dollar trade balance shrank from $77.71 billion to $56.53 billion.

Despite the underwhelming overseas demand, the surge in imports could potentially drive economies reliant on trade with China due to domestic demand.

On Sunday, China Premier Li Qiang vowed to ease regulations and boost imports, which could benefit export-focused economies, such as Australia, and stimulate economic expansion. This commitment to increased imports counteracted the impact of declining exports on riskier assets. However, market anticipation was high ahead of the crucial RBA monetary policy decision.

RBA Raises Cash Rate by 25 Basis Points, Reaching 4.35%

The RBA increased the cash rate by 25 basis points to 4.35% on Tuesday, aligning with economists' expectations. However, uncertainty persisted regarding the commitment to further rate hikes to combat inflation.

According to the Rate Statement,

The RBA anticipates inflation to reach approximately 3.5% by the end of 2024 and to be at the upper threshold of the 2-3% target by the end of 2025. In October, the RBA projected inflation to stay within the 2-3% target range by late 2025. Assessing recent economic indicators, the Board identified an increased risk of prolonged high inflation. The Australian economy exceeded expectations, and the labor market remains tight. Medium-term inflation expectations align with the inflation target. Service price inflation remains a concern, with uncertainty arising from delayed effects of policy tightening. Uncertainties stemming from Australian household spending, the Chinese economy, and conflicts compounded the ambiguous outlook.

Crucially, there was no explicit commitment to raising rates further in December or early 2024. The absence of a firm pledge to additional rate hikes left investors contemplating a scenario of a single rate adjustment. Despite the Board's unwavering determination to restore inflation to target, the RBA Statement was dovish.

The Australian Dollar's Response to China Trade and RBA Developments

Before the trade data release and RBA interest rate decision, the AUD/USD peaked at $0.64888 before retracting.

Following disappointing China exports and apprehension surrounding the RBA rate decision, the AUD/USD experienced a post-trade data downturn to $0.64818. However, investor reactions to the RBA interest rate decision and statement propelled the Australian dollar to a high of $0.65012 before declining to $0.64552.

As of this morning, the AUD/USD stands at $0.64605, marking a 0.43% decrease.

What's Next

On Tuesday, investor attention will focus on speeches from FOMC members. Michael Barr, Lorie Logan, Christopher Waller, and John Williams, all FOMC voting members, will deliver speeches. Fed Vice Chair John Williams typically holds significant sway over investor sentiment regarding the Fed rate trajectory. However, market participants will likely pay close attention to references made by FOMC members to the economy, inflation, and interest rates.

Given the prominence of Fed commentary, investors are likely to overlook US trade data for September, as the US trade-to-GDP ratio stands at less than 30% and is expected to have minimal influence on the Fed rate path.