SYDNEY: The Australian dollar retreated on Tuesday after the country’s central bank hiked interest rates as many had expected, but sounded non-committal on whether even tighter policy would be necessary.
The Aussie eased 0.6% to $0.6447, having already failed to clear resistance above $0.6520 overnight. Support comes in around $0.6410.
The kiwi dollar also dipped to $0.5942, after topping out at $0.6001 the previous session.
The Reserve Bank of Australia (RBA) lifted its cash rate by 25 basis points to 4.35%, ending four months of pauses and taking rates to their highest since late 2011.
Yet the central bank also softened its previous position that “some” further tightening may be needed, instead saying “whether” a move would be necessary would depend on incoming data.
“There are good reasons to suspect today’s hike will be the last in the RBA’s current hiking cycle,” said Abhijit Surya, an economist at Capital Economics.
“It’s clear that RBA remains concerned about potential overtightening, noting that weak consumption growth and dwellings investment were likely to contribute to below-trend growth.”
Markets had implied a 70% chance of a hike this week, while the vast majority of analysts has expected a move. But futures moved to lengthen the odds on a further hike in December, which is now priced around 30%.
The market also now shows some small prospect of an easing late next year, having previously priced out any chance at all.
Australia, NZ dollars pause after sharp rally, eyes on RBA
Three-year bond yields eased back to 4.252%, after initially spiking to 4.359% when news of hike hit dealing screens. Yields on 10-year bonds fell 5 basis points to 4.711%.
“The RBA still stands out among major central banks by delivering a Q4 2023 rate rise so the guidance hinting at a high hurdle for another hike shouldn’t hurt the Aussie on yield spreads too much,” said Sean Callow, a senior FX analyst at Westpac.
“But it does cool the Aussie’s near-term prospects somewhat,” he added. “We now see any renewed rallies capped by resistance at $0.6562.”
Investors see almost no chance of a further hike from the Reserve Bank of New Zealand (RBNZ) following a run of softer inflation and jobs data, and favour a first cut late in 2024.