AUD surges on heels of subtle shift in RBA forward guidance

Daily Currency Update

The Australian dollar outperformed through trade on Tuesday, surging through 0.76 US cents on the heels of a hawkish RBA policy update. As expected, policymakers left interest rates at record lows, however a subtle shift in rhetoric and a hawkish tilt fueled expectations the board will raise rates in the coming months. In its official statement the RBA removed the word “patient” when referencing its approach to potential rate increases, signaling the future monetary policy setting will be dependent on data delivered in the near-term. Markets have long expected that the RBA will need to give up its patient approach and it seems that day has finally come, driving expectations of a June rate rise is now firmly on the table, while an elevated inflation print later this month could force the bank to move earlier and possibly raise rates next month ahead of the Federal Election. Having tracked sideways in the lead up to the policy announcement the AUD jumped higher surging through resistance at 0.7550 and 0.76 marking intraday highs at 0.7660. Commentary from Fed member Brainard then forced the AUD back below 0.76 cents as it gave up almost half its post RBA gains to settle only marginal below 0.7580 at time of writing.

Today’s domestic docket is devoid of headline data and our attentions turn to the Fed’s latest minutes for any insight into balance sheet reduction and interest rate forward guidance.