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Australian dollar swings after RBA shocker

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The Australian dollar showed some bounce on Tuesday, courtesy of the RBA rate decision. AUD/USD produced a flash spike of 60 points after the move and touched a daily high of 0.7248, but was unable to consolidate.  In the European session, the Aussie is trading at 0.7180, unchanged on the day.

RBA surprises with 50bp hike

The RBA had a huge surprise up its sleeve, as it delivered a 50bp rate hike, bringing the cash rate to 0.85%. The meeting was live, with the markets had expected a modest 25bp rise, although there were some forecasts of a 40bp increase as well. The super-size 50bp move indicates that the RBA is determined to curb inflation with an aggressive rate-tightening cycle. At the same time, the RBA runs the risk of appearing to be in panic mode with such a large hike and runs the risk of losing credibility if inflation doesn’t start to ease soon.

The RBA’s rate statement was not particularly hawkish, considering the massive rate hike. That could explain why the Australian dollar was not able to capitalize on the rate hike, as the spike quickly fizzled. The statement noted that inflation had accelerated more than anticipated and was expected to increase further before declining next year. The Bank expressed confidence that today’s rate hike would contribute to inflation falling “over time”. The statement also noted that the economy was resilient and the labour market remains strong.

The US dollar received a boost from US Treasury yields, as the 5, 10 and 30-year yields are all above the 3 per cent level. The upward move in US yields could be related to this week’s USD 96 billion in government bond sales in the 3, 10 and 30-year tenors. Will yields remain above 3% during the week? If so, the dollar could show some strong movement after the CPI release on Friday.

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AUD/USD Technical

  • AUD/USD tested resistance at 0.7211 earlier in the day. The next resistance line is 0.7280
  • 0.7158 is under pressure in support. Below, there is support at 0.7069

 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.

Kenny Fisher

Kenny Fisher



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