AUD/USD’s reaction to the yesterday’s RBA interest decision

The AUDUSD pair has reached an intraday peak of 0.72469 following the RBA decision. The buying action was spurred on by Aussie bullish investors after the RBA decided to increase the interest rate by 50 basis points to 0.85%. This increase was higher than the consensus of 25 basis points.

The RBA is on track to raise the interest rate a few more times before the end of the year. The general consensus by experts and traders is that the interest rate will reach 2.70% by year’s end. Yesterday’s interest rate hike is already ahead of consensus of 0.55%, this could mean that the increase is happening faster than expected.

However, the price did not last long at the peak. It was brought back to the previous price points due to a few factors. The AUDUSD reversed its big gains within the hour could be due to investors becoming cautious ahead of the US inflation scares and wanting to transfer their funds back into USD.

Another reason could be coming from the Australian payroll data for the month of April. The Australian labour department has reported an addition of 4,000 jobs in April, which is lower than the forecast of 30,000. These figures would usually trigger recession fears within the Australian economy. As the RBA looks to impose a policy tightening approach, companies will be forced to be critical on their investment opportunities. This can lead to a further slippage for employment changes.

Meanwhile, the US dollar index (DXY) has extended its gains and has overstepped its previous two week’s high at 102.73. Uncertainty over the release of Friday’s US Consumer Price Index (CPI) is supporting the DXY. A preliminary estimate for the annual US inflation is 8.2% against the prior print of 8.3%. A minor slippage in the US inflation is not going to exhaust the momentum of the DXY bulls but will bolster the odds of a consecutive jumbo rate hike by the Federal Reserve (Fed) next week.

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Source: GO Markets, ASX, RBA, AFR, Fxstreet