Key points:
- The AUDUSD currency pair fell on the RBA’s dovish rate hike.
- The RBA raised interest rates by 0.25% instead of the expected 0.50%.
- As a result, the Aussie is expected to remain weak against the US dollar.
The AUDUSD currency pair fell today after the Reserve Bank of Australia hiked interest rates by 25 basis points (0.25%), missing analysts’ consensus estimates of a 50 basis point (0.50%) rate hike.
Many analysts interpreted the ambler rate hike as a dovish move by the Reserve Bank, which put the Aussie under pressure given that most central banks led by the Federal Reserve remain hawkish and are on an aggressive rate hiking schedule.
Also read: The 24-Hour Trading Day Of The Forex Market.
However, many central banks are expected to reach the peak of their rate hiking cycle, with many analysts saying that the RBA has not reached the peak of its current rate hiking cycle since it remains willing to hike rates further if the macroeconomic conditions demand the same.
Most analysts expect the Australian dollar to continue falling against the US dollar due to the difference in the monetary policy stance adopted by each country’s central bank. The RBA will remain under pressure to continue hiking rates to keep up with the US Fed.
Today’s decision by the RBA was primarily motivated by the sharp reversal seen in Australia’s housing market this year as house prices fell from the historic highs reached last year as demand for housing far outstripped supply.
The economic uncertainty and the high-interest rate macro environment have eroded demand for houses in Australia as lenders become more hesitant to fund home purchases and buyers hold back from buying due to the current high rates on home loans.
The dovish situation for the Australian dollar is unlikely to change this week unless the upcoming US September jobs data miss consensus estimates by a wide margin. Such a situation would allow other currencies to rally against the US dollar.
*This is not investment advice.
AUDUSD price chart.
After the RBA decisions, the AUDUSD currency pair was trading down 51.2 pips (0.79%) at writing.
