The market had more or less priced in a 15 bps rate hike by the RBA coming into the decision, so most players were prepared for a potential "go big or go home" moment in case the central bank did not hike or chose to hike by 40 bps instead.
But the RBA surprised with a cheeky 25 bps rate hike and that looks to be enough to not spook the market all too much.
It's enough to give the aussie a modest lift and set out a clear and concise message to the market that they are looking to do their part in trying to combat surging inflation pressures. This is the first rate hike by the RBA since 2010.
Let's take a look at some of the finer details that matters:
- Cash rate raised by 25 bps to 0.35%
- RBA expects inflation to spike towards 6% some time this year
- RBA expects inflation to moderate towards 3% by mid-2024
- RBA acknowledges some positive developments on wage growth
- RBA does not plan to reinvest the proceeds of maturing government bonds
- RBA does not plan to sell the government bonds purchased during the pandemic
- RBA sees a need to hike rates further moving forward
Quite frankly, the part on wages is a bit biased in my view. The RBA needs to set out reasons for an explicit tightening cycle so they are looking at the glass to be half full instead of it being half empty. A case of po-tay-to and po-tah-to.
As for the aussie, it's getting a bit of a tailwind but there is relative uncertainty on how much more or how quickly the RBA will be raising rates moving forward. That to me is enough to see upside be rather limited.
AUD/USD got a jump from 0.7090 to 0.7140 on the decision and is now trading in between its key hourly moving averages:
That leaves some room for price to roam above its 100-hour moving average (red line) @ 0.7103 with the resistance region around 0.7180-90 and the 200-hour moving average (blue line) @ 0.7184 helping to limit any major upside potential.
If anything else, the gains here may be fleeting considering that there isn't much conviction to chase a further upside leg especially since there is still the Fed to contend with tomorrow.
The dollar is also slightly weaker across the board today so that should stave off any real threat of testing 0.7000.
So, we won't really get much firmer direction outside of the ranges above in the pair until the FOMC hurdle is cleared tomorrow.
