First of the G20 banks to rise interest rates – Reserve Bank of Australia
The RBA surprised markets with a move overnight, becoming the first of the G-20 banks to hike interest rates. And even though Australia was increasingly leaning toward a hike, there was more than enough surprise to pull AUD significantly higher vs the broader market. This and renewed risk appetite brought AUDUSD within touch of 0.8900, a new high since late last summer. The 2-year interest rate differentials for the US and Australia are still a tad below the highest level from September, however, then AUDUSD was trading a bit lower, so the direction for AUDUSD after the immediate kneejerk here will still depend on a further widening of the differential and continued robust risk appetite. In other words, it’s all priced in at the moment.
The RBA explained its decision as a result of an economy performing more strongly than expected and an inflation outlook in which “inflation will not fall as far as earlier thought.” The RBA also mentioned that Chinese growth has been very strong. On the strength in the Aussie currency, the RBA simply noted that the currency was strong and that its strength was “considered”. Lack of concern on the currency was also a green light for the Aussie bulls. Barring any exogenous shocks, the RBA is likely to hike at its next two meetings as well.
Leave a Reply
