Australian dollar jumps after a surprise rate hike by RBA to 4.10%

The Australian dollar gained nearly 0.80% to $0.6680 a dollar on Tuesday morning after the Reserve Bank of Australia (RBA) board members decided to hike the Official Cash Rate (OCR) by another 25 basis points (bps) to 4.10% at its June 06 policy meeting, a hawkish surprise once again following another surprise 25 bps rate hike delivered in May.

AUD/USD pair, 2-hour chart

According to the latest Reuters poll, nearly a two-thirds majority of economists, or 21 of 32, expected the RBA to hold its benchmark interest rate steady at 3.85% this Tuesday.

RBA proceeded with another rate hike this morning and said that further tightening of monetary policy might be required to ensure that inflation returns to a range between 2%-3% target in a reasonable timeframe, which rose again in April to 6.8% year-on-year.

Reserve Bank of Australia’s Governor Philip Lowe said, while inflation in the nation may have “passed its peak,” there are still indicators showing inflation persisting, forcing the central bank to respond with a fresh rate hike to bring down the nation’s inflation rate.

The AUD/USD pair hit an intraday high of $0.6680 shortly after the rate hike decision, extending gains from last week on improved risk sentiment and a rebound on Chinese stock markets given some optimism over fresh stimulus from China’s administration, that will support imports from Australia and demand for the Australian dollar in the long term.

Yet, the pair still trades below May’s highs of $0.68 as the recent escalated tension between U.S. and China for Taiwan, the major trade partner of Australia has been weighing on the Aussie outlook and keeps messing the optimism over the antipodean economy.

Aussie has been trading in a downward trend since topping at nearly $0.71 in mid-February 2023, and eventually bottoming to $0.6484 on June 01, down nearly 10%.