Australian Dollar: RBA hike to support AUD/USD – BBH

Brown Brothers Harriman highlights that the Reserve Bank of Australia delivered a widely expected 25 bps hike to 4.60%, a 15-year high, and kept the door open to further tightening. AUD/USD initially rallied on the hawkish statement but reversed as Governor Michele Bullock signaled less urgency.

RBA tightening and AUD reaction

"As was widely expected, the RBA delivered a 25bps hike to a 15-year high of 4.60% after pausing tightening in June and August. The decision was unanimous with the statement noting that “some of the upside risks [to inflation] flagged in August are materialising.” The RBA also reiterated readiness to “increasing the cash rate target further if needed.”"

"AUD/USD initially rallied on the hawkish RBA statement, then reversed as Governor Michele Bullock suggested less urgency for additional tightening. Her hope that the four hikes this year would prove sufficient alongside confirmation that the Board considered a pause at today’s meeting took some of the hawkish edge off the decision."

"RBA cash rate futures price in 36bps of tightening in the next twelve months. That limits policy divergence with the Fed and offers AUD/USD support. Moreover, Australia’s strategic exposure to commodities linked to energy, AI, and defense remains an important long-term tailwind for AUD."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)