Aussie jumps after RBA hike
|The Australian dollar has posted strong gains on Tuesday. In the European session, AUD/USD is trading at 0.6934, up 0.75%.
RBA expected to raise rates
There were no surprises from the RBA, which raised rates by 25 basis points, for a record ninth straight hike. This brings the cash rate to 3.35%, its highest level since 2012. The RBA has settled into a tightening policy of small but steady increments and has raised rates by 25 bp four consecutive times. RBA Governor Lowe’s rate statement after today’s meeting was more hawkish than expected, surprising the markets and giving a big boost to the Australian dollar.
Lowe said that “further increases in interest rates will be needed over the months ahead”, a signal that he was prepared to tighten by 50 bp and perhaps even more in order to tame inflation. Lowe added that this period of high inflation was only temporary, but with inflation hitting 7.8% in Q4, its highest since 1990, I wonder just how many investors would agree that high inflation is temporary.
The RBA’s steep rate-hike cycle is yet to tame inflation but it is taking a bite out of economic activity. Earlier in the week, retail sales slumped by 3.9% and January’s Manufacturing and Services PMIs both indicated contraction. Fortunately for the RBA, the employment market remains robust, allowing the central bank to continue raising rates.
The US Dollar received a much-needed boost from the US employment report on Friday, and a host of Fed speakers this week could extend the dollar’s rally. The Fed members are expected to reiterate the “higher for longer” stance that the Fed has been pushing, and the markets will be listening closely as Fed Chair Powell delivers remarks in Washington later today.
AUD/USD technical
-
0.6962 is a weak resistance line, followed by 0.7080.
-
0.6841 and 0.6761 are providing support.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.