AUD buoyed as RBA issues surprise 50-point hike

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.