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Australian dollar gives up rally as RBA delivers dovish hike

10/04/2022 | 01:34am EST

SYDNEY, Oct 4 (Reuters) -

The Australian dollar lost ground on Tuesday, having rallied sharply overnight, after the Reserve Bank of Australia delivered a smaller-than-expected rate hike, even as central banks elsewhere are raising rates aggressively.

The Aussie slid 0.6% to $0.6476, moving closer to its recent 2-1/2 year trough of $0.6364, after the RBA raised its official cash rate by 25 basis points to 2.6%, defying expectations for a bigger 50-basis-point rise.

It rallied 1.6% overnight on the back of a rebound in global risk sentiment, as Britain's move to reverse course on parts of a controversial tax cut plan and a soft U.S. manufacturing report offered solace to investors.

The Commonwealth Bank of Australia (CBA), which had predicted the 25-basis-point move, expects the central bank to hike by another 25 bp in November before pausing.

"From that point our central scenario has the RBA on hold as they give themselves time to assess the lagged impact of rate rises on the Australian economy," said Gareth Aird, head of Australian economics at CBA."

Interest rate futures jumped as the market priced in a lower peak for rates of 3.6%, compared with about 4.1% previously.

Australian three-year government bond yields plunged 34 basis points to 3.258% while ten-year yields tumbled 20 bps to 3.708%.

Sean Callow, a currency strategist at Westpac in Sydney, said any renewed deterioration in the global risk sentiment should boost the U.S. dollar and see the Aussie probe again the $0.6400 area.

"Near term, AUD/USD price action is being muddied by the bounce in global equities and broad-based US$ pullback."

The New Zealand dollar was off 0.4% to $0.5695 on Tuesday, having bounced 2.0% overnight. Short-term resistance remains around 0.5750% while support lies around $0.5600.

The Reserve Bank of New Zealand (RBNZ) is widely expected to raise its interest rate by half a point to 3.5% on Wednesday, as it fights to contain inflation. (Reporting by Stella Qiu in Sydney and Kevin Buckland in Tokyo; Editing by Ana Nicolaci da Costa)


ę Reuters 2022
Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIAN DOLLAR / CANADIAN DOLLAR (AUD/CAD) 0.35% 0.91519 Delayed Quote.-0.94%
AUSTRALIAN DOLLAR / JAPANESE YEN (AUD/JPY) -0.49% 92.919 Delayed Quote.10.96%
AUSTRALIAN DOLLAR / NEW ZEALAND DOLLAR (AUD/NZD) 0.14% 1.0781 Delayed Quote.1.65%
AUSTRALIAN DOLLAR / SWISS FRANC (AUD/CHF) 0.24% 0.64314 Delayed Quote.-3.64%
AUSTRALIAN DOLLAR / US DOLLAR (AUD/USD) 0.46% 0.68252 Delayed Quote.-7.95%
BRITISH POUND / AUSTRALIAN DOLLAR (GBP/AUD) -0.18% 1.7721 Delayed Quote.-4.09%
BRITISH POUND / NEW ZEALAND DOLLAR (GBP/NZD) -0.06% 1.91075 Delayed Quote.-2.53%
CANADIAN DOLLAR / AUSTRALIAN DOLLAR (CAD/AUD) -0.38% 1.092407 Delayed Quote.0.98%
COMMONWEALTH BANK OF AUSTRALIA 0.52% 108.42 Delayed Quote.6.79%
EURO / AUSTRALIAN DOLLAR (EUR/AUD) -0.18% 1.53026 Delayed Quote.-1.32%
EURO / NEW ZEALAND DOLLAR (EUR/NZD) -0.05% 1.64991 Delayed Quote.0.27%
INDIAN RUPEE / AUSTRALIAN DOLLAR (INR/AUD) -0.31% 0.01804 Delayed Quote.-0.88%
NEW ZEALAND DOLLAR / US DOLLAR (NZD/USD) 0.29% 0.63302 Delayed Quote.-9.37%
US DOLLAR / AUSTRALIAN DOLLAR (USD/AUD) -0.42% 1.464622 Delayed Quote.8.67%
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