RBA hikes 0.50%, as expected

Source: Dukascopy Bank SA
On August 2, the Reserve Bank of Australia hiked its Cash Rate from 1.35% up to 1.85%. The 0.50% hike was expected, as most central banks have been tightening monetary policy to fight inflation that has been rampant in the aftermath of the coronavirus stimulus.

In addition, the central bank published its Rate Statement. In general, the central bank wants to get back to its target inflation rate of 2-3 percent.

However, between the lines the markets spotted that the central bank might not be as harsh in its monetary tightening, as previously expected.

Quoting the statement: "The Board places a high priority on the return of inflation to the 2–3 per cent range over time, while keeping the economy on an even keel. The path to achieve this balance is a narrow one and clouded in uncertainty, not least because of global developments. The outlook for global economic growth has been downgraded due to pressures on real incomes from higher inflation, the tightening of monetary policy in most countries, Russia's invasion of Ukraine and the COVID containment measures in China."

Released Document

Statement by Philip Lowe, Governor: Monetary Policy Decision

The AUD/USD reacted to the hike with a decline, which over the span of four hours extended to almost 100 base points or 1.40%. Namely, the markets took in the comments in the statement as indicative of an end to the ongoing hiking cycle.

On a larger scale, the pair hit a low at 0.6700 in mid-July. Since the event a recovery was taking place, which managed to reach above 0.7000. The announcement moved the rate back below 0.7000.

Initial Reaction

Larger scale situation

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