RBA Rate Hike Impacts Dollar and Aussie

The dollar increased on Tuesday, putting a pause on the previous week’s surge in riskier currencies. Meanwhile, the Australian dollar experienced a decline following the Reserve Bank of Australia’s (RBA) decision to increase rates. However, the RBA also adjusted its outlook, leading to speculation that the rate hikes have reached their conclusion.

RBA’s Rate Hike and Its Impact

The RBA increased interest rates by 25 basis points on Tuesday to tackle persistent inflation. This move was anticipated, but the market focused on a slight change in the language of the RBA’s statement. This led to the conclusion that further tightening was improbable. Consequently, the Australian dollar dropped as much as 1.06% to a low of $0.642 and was last seen at $0.6434. This marked the currency’s most significant one-day percentage decline in a month.

Carol Kong, a currency strategist at the Commonwealth Bank of Australia, noted that the RBA’s forward guidance was perceived as dovish, resulting in the Aussie losing its gains after an initial spike.

The Influence of U.S. Data and Fed Rhetoric

The Aussie had benefited from the weakening dollar last week and reached a three-month high on Monday. This was after U.S. data revealed a slowdown in job growth in October. This data led markets to anticipate rate cuts by mid-next year, boosting risk appetite.

Kong stated that with the RBA’s decision out of the way, the significant determinants of AUD/USD will shift back to global factors. The focus is expected to return to Fed rhetoric and its impact on U.S. Treasuries.

The Dollar Index and Other Currencies

The dollar index, measured against a basket of currencies, rose 0.1% to 105.38 after a 0.2% increase on Monday. However, it remained close to a nearly two-month low of 104.84 reached on Monday.

Chester Ntonifor, a foreign exchange strategist at BCA Research, explained that the jobs report triggered a reversal of some positions, leading to a decline in the index last week. The future direction of the markets will depend on incoming data.

The euro was down 0.15% at $1.070, moving away from its eight-week peak of $1.0756 on Monday. Sterling was last at $1.2327, down 0.1% on the day and just shy of the seven-week high of $1.2428 it hit on Monday.

The Japanese yen was at 150.28 per dollar, returning to the weak side of the 150 level. This has kept traders on edge in recent weeks as they look for signs of intervention from Tokyo.