AUD/USD shoots to near 0.6950 as RBA hikes interest rate by 25 bps to 3.35%

The AUD/USD pair has climbed to near 0.6950 as the Reserve Bank of Australia (RBA) has increased the Official Cash Rate (OCR) by 25 basis points (bps), as expected by the street. A fourth consecutive 25 bps rate hike by RBA has pushed the OCR to 3.35%. . This is the ninth consecutive interest rate hike by RBA Governor Philip Lowe to tame stubborn inflation.

A hawkish interest rate policy was widely anticipated by the RBA as the Australian Consumer Price Index (CPI) showed a historic surge in the fourth quarter of CY2022. Households in the Australian regions are bearing the higher cost of living pressures amid the absence of slowdown signals in the overall inflation figures.

Meanwhile, easing tensions between the United States and China have brought some optimism for the Australian Dollar. US President Joe Biden conveyed that the spy balloon incident doesn’t weaken US-China relations. Apart from that, International Energy Agency (IEA) Executive Director Fatih Birol's faith in hopes of China’s economy, stating that “Half of the growth in global oil demand this year will come from China.” has also infused optimism for the Australian Dollar.

It is worth noting that Australia is a leading trading partner of China and rising hopes for an economic recovery in China support the Australian Dollar.

A recovery move by the S&P500 futures as investors shrugged off uncertainty over hawkish Federal Reserve (Fed) bets has weakened the risk aversion theme. Improved risk appetite has also impacted the US Dollar Index (DXY), which has corrected to near 103.10. The return generated by 10-year US Treasury bonds has slipped below 3.62%.

Later the day, the speech from Fed chair Jerome Powell will be keenly watched. The speech from Fed Powell will provide cues about the likely monetary policy action ahead.