Australian dollar gets limited support from well-flagged rate hike
SYDNEY: The Australian dollar got only fleeting support on Tuesday after the country’s central bank lifted interest rates to a 15-year peak and indicated it was ready to do more if needed to curb stubborn inflation. Wrapping up its September board meeting, the Reserve Bank of Australia board voted unanimously to raise its cash rate by 25 basis points to 4.60%, the fourth hike this year. Markets…
Sydney received only brief support from the Australian dollar on Tuesday following the Reserve Bank of Australia's decision to increase its interest rate to a 15-year high and hint at further action to tackle persistent inflation. The board unanimously approved a 25 basis point increase, bringing the cash rate to 4.60%, the fourth hike this year.
The market had already anticipated the move, leaving limited immediate reaction. Futures suggest a 44% probability of another rate hike in November, with odds rising to 60% in December. The August consumer price data is expected to show inflation accelerating to 4.1% from 3.5%, driven largely by a surge in fuel costs. However, core inflation is projected to stay at 3.6%, significantly above the RBA's target range of 2% to 3%.
Katherine Palmer, BlackRock Australia's head of fixed income strategy, emphasized that the upcoming release will provide crucial insights into domestic price pressures and inform the bank's policy outlook. The Australian dollar steadied at $0.7014 after stabilizing above $0.7000 overnight, with resistance at $0.7043 and $0.7139, and strong support at $0.6922.
10-year bond yields remained steady at 5.416%, near their highest level since mid-2011, outperforming US Treasuries and reducing the premium on 10-year debt to 19 basis points from 32 basis points at the start of the month. Meanwhile, New Zealand's dollar saw a slight decline to $0.5656, as the support at $0.5650 held. If broken, it could expose the June low of $0.5627, with the resistance around $0.5687 and $0.5748.
Market forecasts indicate a 78% chance of a quarter-point rate hike to 3.0% by the RBNZ when it meets on October 28, with another hike possible by February. The 10-year bond yields have surged to their highest since late 2023 at 5.178%, but they have not faced as much pressure as US Treasuries. On Tuesday, the New Zealand government disclosed a smaller budget deficit and reduced its 2026/27 debt issuance by NZ$4 billion to NZ$30 billion.
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