The Reserve Bank of Australia's decision to keep the cash rate steady at 2 per cent for the third month in a row has heightened expectation it will not cut again in the current cycle.
Despite the Tuesday decision being widely expected, the Australian dollar surged almost US1¢ to about US73.80¢, its highest point for almost a fortnight.
Currency traders are betting that RBA governor Glenn Stevens will leave the cash rate at this point, and is happy with the support the Aussie's current level is giving exporters and import-imposed businesses.
A lower dollar means cheaper exports and more expensive imports, a situation which makes Australian companies more globally competitive. This has been central to the country's transition from a reliance on mining-related investment towards a more balanced growth model.
In one of the few differences between the August and July statements regarding the rate decision, Mr Stevens dropped the reference to the need for "further depreciation" in the local unit, replacing it with "the Australian dollar is adjusting to the significant decline in key commodity prices".
Analysts cautioned the currency would continue to fluctuate in line with commodity prices.
The Aussie has depreciated about 9 per cent against a basket of trading partners in the past year, including 4 per cent in July. At that time, it tracked fluctuations in the price of Australian exports such as iron ore, coal and gold.
"In the context of the 4 per cent fall in the trade-weighted index during July . . . the RBA is right to be suitably vague about whether they would still welcome further depreciation," National Australia Bank's global co-head of foreign exchange strategy, Ray Attrill, said.
"Yet almost certainly they would, given these ongoing commodity price pressures.
"But since the currency is now moving strongly with commodity prices, the board evidently felt they no longer need to be publicly making the case for a still weaker currency."
Mr Stevens also appears pleased with stability in the jobs market, despite spare productive capacity.
The focus now turns to Friday's quarterly statement on monetary policy (SoMP), when the RBA is likely to revise down its forecasts for gross domestic product growth this year and in 2016.
The central bank last lowered rates a quarter of a percentage point in May after a similar cut in February.
Despite some patchy economic data, the RBA is reluctant to make a third cut, partly over concerns about Sydney's heated property market and household indebtedness but also because of doubts about the efficacy of lower rates at this stage of the cycle.
The case for leaving rates unchanged received a boost on Tuesday when the Australian Bureau of Statistics reported a 0.7 per cent month-on-month jump in retail turnover for June.
The increase, which was almost double market expectations, reflected May budget measures to help small business and the pick-up in house building and investment. June's trade figures also came in slightly better than expected.
Of the 28 economists surveyed by Bloomberg ahead of Tuesday's meeting, only three had tipped a cut to 1.75 per cent.
Interest rate swap market pricing had also discounted any chance of further policy easing at the August meeting.
However, some economists say there is a chance of a third RBA cut towards the end of the year, mainly to combat stubbornly sluggish growth and a possible rebound in the unemployment rate towards 6.2 per cent or 6.3 per cent, from the present 6 per cent.
"On balance, we continue to believe that another rate cut, in November, is more likely than not, but the onus is now more on the data to show a moderation in house price gains and slower investor lending for housing over the next few months," Nomura's rate strategist for Australia, Andrew Ticehurst, said.
"We will look for further elaboration and clues within the SoMP on Friday."
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