After four months of pauses (July, August, September and October) the Reserve Bank of Australia raised interest rates, taking the cash rate 25 basis points higher to 4.35%. This is the thirteenth cash rate hike since the cycle began in May 22 and moves the rate to its highest in 12 years.

AUD/USD dropped away after the announcement. Some attributed this to the rate hike being widely expected, while another response I saw was that the Statement from Reserve Bank of Australia Governor Bullock watered down forward guidance and dropped a hint that the RBA sees the peak as being in. I’m going to disagree with this take. Even if the RBA does believe the peak is in I’d argue they have little basis for making this assertion. The RBA has been more reluctant, and slower, to hike than most other DM central banks and here we are hiking while others are not. RBA forecasting has not been of high quality. I read the statement as nodding to data dependence.

Elsewhere we had October trade data from China today. This showed a welcome beat for imports. Recovering China imports are welcome and are a positive for China-proxy trades such as AUD (although not today, see above!). Exports missed though, which was blamed on slow global demand.

Also in China, a senior People’s Bank of China was relaxed about the economy, saying some debt risks will recede while and the property market has long-term potential.

While on central banks, Minneapolis Federal Reserve Bank President Neel Kashkari said the FOMC has more work to do in bringing inflation under control and further hikes may well be needed.

The USD strengthened pretty much across the major FX board. AUD, CAD and NZD were notable losers. USD/JPY is back above 150.

aud rba rate hike 07 November 2023 wrap chart

As I post the Australian dollar is losing further ground.