AUD/USD drops to 0.6420 as RBA hikes interest rate by 25 bps for the second time

The AUD/USD has witnessed a steep fall to near 0.6420 pair as the Reserve Bank of Australia (RBA) has hiked its Official Cash Rate (OCR) by 25 basis points (bps) for the second time. The decision has remained in line with the projections and the Official Cash Rate (OCR) has increased to 2.85%. RBA Governor Philip Lower has preferred a less-hawkish policy approach to sustain economic prospects in accordance with the primary objective of brining price stability.

This week, the Australian Bureau of Statistics reported the inflation rate for the third quarter at 7.3%, higher than the consensus of 7.0% and the prior release of 6.1%. Responses were mixed from economists on rate projections in between the continuation of a 25 bps rate hike as reported in October or a return to a 50 bps rate hike structure.

In early Tokyo, aussie bulls were also strengthened by the release of upbeat Caixin Manufacturing PMI data. The economic data landed higher at 49.2 vs. the projections of 49.0 and the prior release of 48.1. It is worth noting that Australia is a leading trading partner of China and rising manufacturing activities in the dragon economy support antipodean.

Meanwhile, the US dollar index (DXY) has witnessed a steep fall to near 111.30 as uncertainty ahead of the Federal Reserve (Fed)’s monetary policy has been shrugged off. S&P500 futures have rebounded in the Tokyo session after a bearish Monday. The 500-stock basket has recovered half of its Monday’s losses and is eyeing more gains ahead. Also, the 10-year US Treasury yields have dropped to 4.03%.

As per the projections, Fed chair Jerome Powell will hike the interest rates by 75 bps for the fourth time as inflationary pressures haven’t shown evidence of exhaustion yet.