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AUD buoyed as RBA issues surprise 50-point hike

Wednesday 8 June, 2022

Daily Currency Update

The Australian dollar punched back above 0.72 US cents through trade on Tuesday amid a correction in US treasury rates and a surprise 50 basis point rate hike from the RBA. The AUD edged toward intraday lows at 0.7160 leading into the Reserve Bank policy announcement, before launching through 0.72 US cents to touch highs at 0.7235. Policy makers surprised investors, raising the cash rate from 0.35% to 0.85%, a fifty-basis point hike. The move exceeded even the most hawkish market expectations and sent a clear signal the RBA will do whatever it takes to control inflation pressures. The 50 basis point adjustment sees the RBA join the Fed, RBNZ and Bank of Canada in adopting an aggressive approach to monetary policy normalisation and represents a stunning about face for policy makers who just last year were committed to leaving rates on hold into 2024. Despite the initial extension, the AUD failed to hold onto gains quickly giving back much of the post update rally and sinking back below 0.7180 US cents, as markets reviewed the accompanying rate statement and took stock of what the change in policy actually means for the domestic economy. Having struggled to break back above 0.72 leading into the overnight session the AUD found support, breaking higher through the latter hours to test near term resistance at 0.7250. A correction in US treasury yields and broader moderation across global rates helped elevate the AUD. Our attentions turn now to US CPI data and the ECB monetary policy update on Thursday as critical risk events guiding direction into the weekly close. With China reporting four new Covid cases outside quarantine facilities in Shanghai, we are keenly watching any signal from Chinese officials suggesting new lockdown measures will be re-introduced. With China only just re-opening after its last attempt to quash the omicron variant, another lockdown will be a significant blow to the underlying risk narrative.

Key Movers

Price action across major currencies was mixed through trade on Tuesday with the US dollar index largely flat. Despite a correction in US treasury rates, 10-year yields slipped back below 3%, the USD extended recent gains against the Japanese yen. The elevated global rates backdrop and BoJ commitment to accommodative monetary policy allowed the dollar to mark fresh 20-year highs above 133. USD/JPY gains were offset by outperformance from the Great British pound. Sterling carried Monday’s momentum through Tuesday testing 1.26. Investors appear calmed after Boris Johnson survived a no confidence vote on Monday, despite having staved off the attack from within his own party, there are many who still believe Johnson’s days are numbered. His predecessor Theresa May survived a similar no confidence motion with a larger majority back in 2018, yet a divided party room mean she was unable to push legislation through parliament, forcing her resignation just 6 months later. Many expect Mr Johnson may face a similar fate. Sustained political uncertainty could weigh on the pound as we move through the second half of the year.

Expected Ranges

  • AUD/USD: 0.7120 - 0.7280 ▲
  • AUD/EUR: 0.6680 - 0.6790 ▲
  • GBP/AUD: 1.7280 - 1.7520 ▼
  • AUD/NZD: 1.1080 - 1.1180 ▲
  • AUD/CAD: 0.9020 - 0.9120 ▲