Aussie rallies across the board after the Reserve Bank of Australia unexpectedly hiked its cash target rate by 25 basis points, to 3.85% on Tuesday morning, surprising forex investors when most had expected a pause in the rate hike cycle as it was the case in the previews meeting in April.
AUD/USD pair, 2-hour chart
AUD/USD pair added over 1% climbing to above the key $0.67 level, and recovering most of last week’s steep losses, which saw the pair bottoming at $0.6550 before bouncing higher.
The RBA decided to hike further its interest rates to curb persistent inflation in the country, where the inflation measure “Consumer Price Index (CPI)” stood at 7% in Q1, 2023, just above the forecasted 6.9%, and still well above the RBA’s target range of 2%.
The hotter-than-expected inflation has prompted RBA to consider more potential rate hikes ahead, although future action will largely depend on economic data and growth. The central bank forecasts 2023′s full-year inflation to stand at 4.5%.
RBA is also forecasting a below-average growth in the coming years, a 2023 GDP of 1.25%, well below the 2.7% growth seen in 2022, as high-interest rates weigh on business and consumer confidence, and as a post-COVID economic rebound runs out of steam.
Adding to the above, Australia’s largest trading partner, China, is also facing slower-than-expected economic and industrial post-Covid recovery, with the Chinese manufacturing sector unexpectedly contracting in April.
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