The Reserve Bank of Australia raised interest rates by 25 basis points to 3.50% as expected.
There was some speculation of a 50 basis point rate increase to 3.75% and the knee jerk reaction has been a sell-off in the Australian dollar. Comments from the RBA appear to be quite hawkish. In the press release accompanying the decision, central bank governor Glenn Stevens said growth in Australia’s main trading partners in the Asia-Pac region is likely to be close to trend in 2010. He also said economic conditions in Australia have been stronger than expected and that the peak of unemployment will be “considerably” lower than earlier expected.
Nonetheless, AUD/USD promply fell to 0.9040 from 0.9080.
- Sharp Drop Post-RBA
The reaction was predictable. There was some speculation of a 50 basis point rate hike (the OIS market suggested an 18% chance), so that had to be wiped away.
Now the AUD will start to look ahead. The market has priced in 210 basis points of tightening in the next 12 months and it’s those expectations that have fuelled the Aussie dollar rally.
Technically, we see AUD in the centre of a wedge patter if we zoom out on the one-hour chart.
