The AUDUSD currency pair was trading up 20 pips at writing after giving up some of its earlier gains following the Reserve Bank of Australia’s (RBA) interest rate decision during the Asian session. The RBA hiked rates by 25 basis points as expected but maintained a hawkish outlook.
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Investors reacted bullishly to the Reserve Bank of Australia's (RBA’s) rate hike after the central bank said it was planning further hikes after the headline December CPI data came in at 7.8% versus consensus estimates of 7.6%, while the quarterly CPI print rose to 1.9% versus the expected decline to 1.6% from the previous figure of 1.8%.
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Unlike the US, where inflation has been falling for a few months now, inflation in Australia is rising, presenting a significant headache for the RBA, which has committed to continuing with the rate hikes until inflation starts dropping and is firmly in a downtrend.
However, the central bank must adopt a balanced approach to ensure it does not stifle growth even as it hikes rates to combat rising inflation. The RBA promised more rate hikes over the coming months, given that all inflation measures were higher than expected by the end of 2022.
For instance, the trimmed mean quarterly CPI print was 6.9% on an annualised basis at the end of 2022, much higher than previous estimates of 6.1% and 6.5%. Therefore, the RBA has no choice but to keep hiking rates or risk dealing with runaway inflation.
Investors have factored in the much-needed rate hikes going forward, given that the Australian dollar was the only major currency trading in positive territory against the US dollar as all other majors recorded losses against the global reserve currency.
The US dollar has rallied against its peers driven by the upbeat jobs data released on Friday, which gives the Federal Reserve significant leeway in future rate hikes given the strength of the US jobs market.
However, the Fed must be careful with future rate hikes since US inflation has slowed significantly in recent months.
*This is not investment advice.
The AUDUSD price chart.
The AUDUSD currency pair was trading up 20.5 pips (0.30%) at writing after the pair gave up some of its earlier gains.
YOUR CAPITAL IS AT RISK. 76% OF RETAIL CFD ACCOUNTS LOSE MONEY.