Market brief
RBA Raises Cash Rate to 4.60%, Aussie Falls Below 0.7000
The fourth hike this year failed to support the currency as global bond yields and a commodity pullback weighed on high-beta G10 currencies, while Governor Bullock's remarks dampened further tightening bets.
Key points
- The RBA raised its cash rate target to 4.60%, the fourth increase this year, citing expectations that inflation will persist longer than previously thought.
- The Australian dollar fell below 0.7000 against the U.S. dollar, testing its 200-day moving average near 0.7030, which it had held above since November last year.
- Governor Bullock said the board considered a pause and hopes four hikes are enough to slow inflation, comments that may temper rate-market expectations for another increase by year-end.
The Reserve Bank of Australia raised its cash rate target by 25 basis points to 4.60%, its fourth increase this year, but the Australian dollar slipped back below 0.7000 against the U.S. dollar as broad dollar strength, a commodity pullback and rising global bond yields weighed on the currency.
The board justified the move by saying inflationary pressures are likely to persist for longer than previously expected. It reiterated that it will "continue to do what it considers necessary to bring inflation sustainably back to target, including increasing the cash rate target further if needed." The RBA said it remains "focused on ensuring that high inflation does not become embedded."
The Australian dollar is testing important levels around 0.7000, where the 200-day moving average is also located at close to 0.7030. The pair had held above that moving average since November last year. The currency has lost upward momentum this month.
The slide has come amid broad-based U.S. dollar strength and a correction lower for commodity prices. The price of iron ore has dropped by around 5% from the high set earlier this month. A sharp ongoing rise in global bond yields is also creating a more challenging backdrop for investor risk sentiment, putting a dampener on the near-term performance of high-beta G10 currencies such as the Australian dollar.
Governor Michele Bullock said at a press conference that she hopes four hikes are restrictive enough to slow inflation, but she doesn't know. She added that the RBA considered a 25-basis-point hike or a pause at today's meeting. Those comments may put a dampener on expectations for further tightening and weighed on the Aussie overnight. The Australian rate market is expecting one more hike by the end of this year in either November or December.
