Australian dollar leader growth on FX after RBA rate hike

02/07/2023

1 minute read

2023.02.07 08:05

On Tuesday, the Australian dollar experienced significant gains. It is currently trading at 0.6934, up 0.75% during the European session.

The, which increased interest rates by 25 basis points for a record ninth time in a row, did not deliver any surprises. The cash rate now stands at 3.35 percent, the highest it has been since 2012. The Reserve Bank of Australia (RBA) has settled into a tightening policy of gradually increasing rates by 25 basis points on four separate occasions. The RBA Governor Lowe’s rate statement after today’s meeting was more hawkish than anticipated, surprising the markets and significantly strengthening the Australian dollar.

In a sign that he was prepared to tighten by 50 basis points and possibly even more to contain inflation, Lowe stated that additional interest rate increases will be required in the coming months. In addition, Lowe asserted that this period of high inflation was brief. However, with inflation reaching 7.8% in the fourth quarter, the highest level since 1990, I wonder how many investors would agree that the current level of inflation is temporary.

Although the RBA’s steep rate-hike cycle has not yet contained inflation, it is affecting economic activity in some way. Retail sales fell by 3.9% earlier in the week, and January’s Manufacturing and Services PMIs both showed contraction. The robust employment market allows the RBA to raise rates, which is good news for the RBA.

The US employment report on Friday gave the currency a much-needed boost, and a number of Fed speakers this week could extend the rally. The markets will follow suit if the members of the Fed continue to advocate for a policy of “higher for longer.” watching closely as Fed Chair Powell speaks later today in Washington.