Australian Dollar Sinks after RBA Hike


The Australian Dollar slipped half a cent lower after the Reserve Bank of Australia (RBA) lifted the cash rate target by a less than expected 25 basis points (bps) to 2.85% from 2.60%.

Despite the strong domestic economy that stands in contrast to the global economy, which the bank highlights in its statement. RBA’s decision comes after the building approval data for august came in yesterday stronger than forecast at 28.1% higher than June’s.

The data reflects the Australian economy, which has maintained a fundamental position. The latest annual GDP to the end of July was printed at 3.6%, and the unemployment rate is steady around multi-generational lows of 3.5%.

The boom in liquified natural gas (LNG) and coal prices has compensated for the current drift in base metal export prices.

After today’s rate hike decision, the RBA said, “the Bank’s central forecast is for CPI inflation to be around 7¾ percent over 2022, a little above 4% over 2023, and around 3% over 2024.”

Australian CPI will be released on the 26th of October, driving market sentiments and expectations for the outcome of the RBA’s November meeting. With the central bank acknowledging that higher inflation lies ahead, it would seem that CPI might need to be massively higher to see another hike of 50 bps.

RBA Governor Philip Lowe has said twice before today’s meeting that if interest rates go high, then there is little or no need for large increases.

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