AUD bucks downtrend on heels of RBA rate hike
Wednesday 4 May, 2022
Daily Currency UpdateThe Australian dollar outperformed major counterparts through trade on Tuesday, buoyed by the RBA decision to lift interest rates and join the global monetary policy tightening cycle. Having opened below 0.7050, the AUD crept toward 0.71 US cents in the lead up to the policy announcement as markets priced in 15 - 40 basis point hike. Policymakers opted for the middle ground raising the cash rate by 25 basis points to 0.35% while proffering a hawkish review of current conditions. The board significantly raised inflation projections signalling further interest rates will be required in the months ahead. Yesterday represented a marked correction and move away from previous RBA rhetoric and an admission from policymakers that Australia’s economy is not immune to the inflationary pressures plaguing other countries. Despite the market being well-positioned to absorb yesterday’s policy adjustment, the RBA’s acceptance that it needs to adopt a tightening cycle and the promise of future rate hikes was enough to push the AUD back through 0.71 and toward intraday highs at 0.7140. The uptick however didn’t extend into the overnight session as markets appeared wary of extending gains ahead of tomorrow’s all-important Fed and FOMC policy update. Domestic retail sales will likely have little impact on direction and we expect the AUD will track between the recent low at 0.7030 and 0.72 US cents in the lead-up to the Fed policy announcement and press conference.
Key MoversPrice action across majors was largely contained through trade on Tuesday with the AUD the only real outlier, enjoying gains against all major counterparts. In the context of recent volatility, investors appeared content in squaring positions and preparing for the all-important FOMC meeting and press conference. The recent surge in bond prices is evidence of the market's lofty expectations and with a 50-basis point hike fully priced in we are keenly attuned to the commentary surrounding any policy change. Having enjoyed a period of sustained support, near term USD direction depends heavily on how quickly and how far the Fed intends to increase the underlying fed funds rate. With the US yields elevated, a miss in the context of market expectations could allow for a broader USD correction while a hawkish outlook will surely consolidate recent gains and amplify pressures felt across other major units.
- AUD/USD: 0.7030 - 0.7230 ▲
- AUD/EUR: 0.6680 - 0.6820 ▲
- GBP/AUD: 1.7480 - 1.7730 ▼
- AUD/NZD: 1.0940 - 1.1080 ▲
- AUD/CAD: 0.9050 - 0.9180 ▲