SINGAPORE: The Australian dollar rose on Tuesday after the nation’s central bank signalled it was primed for further monetary tightening to add to its recent surprisingly large rate hike, as policymakers vowed to stay firm in their fight against soaring inflation.

In minutes of its July policy meeting out earlier in the day, the Reserve Bank of Australia’s (RBA) board said the current level of interest rates “was still very low for an economy with a tight labour market and facing a period of higher inflation.”

The central bank had raised rates by a bigger-than-expected 50 basis points at the meeting, the third hike in as many months.

The Aussie advanced as much as 0.23% to $0.6829 following the release of the minutes, as markets firmed up on expectations for a months-long period of further policy tightening.

David Plank, head of Australian economics at ANZ, expects the RBA to deliver four more successive 50-basis point rate hikes starting with the next meeting in August, bringing the cash rate target to 3.35% by November.

“This reflects the strong momentum in the labour market and the clear upside risks to inflation. We don’t think the RBA will be comfortable with policy merely getting to neutral by year-end given this backdrop.”

Jobs data released last week showed net employment in Australia surged 88,400 in June from May, nearly thrice that of market forecasts of a 30,000 increase, while the unemployment rate dived to a 48-year low of 3.5%.

Australian dollar sees some relief on talk of bigger RBA rate hikes

Later on Tuesday, RBA deputy governor Michele Bullock is due to give a speech on how Australian households are placed for interest rate increases.

“AUD bulls may judiciously wish to take a backseat,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore, ahead of the speech.

“Mainly because it is difficult to imagine that this speech will be able to skirt the issue of the risks of potentially far more burdensome mortgage liabilities.”

On Tuesday, the New Zealand dollar eased to $0.6155 after a short-lived rally the day earlier, following record inflation numbers.

Data released on Monday showed New Zealand consumer prices jumped 1.7% in the second quarter lifting annual inflation to a 32-year high of 7.3%, topping forecasts of 7.1%.

“While annual CPI inflation looks to have peaked this cycle, the inflation outlook is still highly uncertain and far too high for the RBNZ’s comfort,” said analysts at ASB, who have since revised up their official cash rate (OCR) forecasts.

They now expect to see 50 bp hikes in August and October, a 25 bp November hike and a 3.75% OCR peak at the end of this year.


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