The Reserve Bank of Australia surprised markets today with a smaller than expected rate hike. RBA hiked official cash rate by 25 basis points to 2.60% while market expected a 50 bp hike to 2.85%. Statement did not provide much explanation unfortunately. Bank noted that the cash rate has already substantially increased in a short period of time but also said that it plans to continue to increase rates in the coming months in order to bring inflation back to 2-3% range. Sizing of future rate hikes will, however, depend on data.
AUD took a hit following a disappointing decision with AUDNZD pulling back further from the upper limit of the upward channel. A support level to watch in case pullback deepens can be found at 1.13 handle, when the lower limit of local market geometry can be found. Traders should keep in mind that RBNZ will announce its rate decision tomorrow in the early morning (2:00 am BST). Expectations are set on a 50 bp rate hike, just as it was the case with RBA.
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