Should You Buy Australian Dollar Following Shocking Rate Hike by RBA?

  • RBA exceeded expectations in its rate hikes.
  • AUD witnessed gains across the FX board.
  • AUD/USD investors waited for Fed’s move.

The Reserve Bank of Australia is among the leading central banks that conduct monthly meetings to assess the economy and make appropriate interest rate decisions. That happens on the first Tuesday of each month.

For that reason, today remained a vital day for FX traders interacting with the Australian dollar. Market participants expected the bank to increase the cash rate from 0.1% to 0.25%. Nevertheless, the RBA went the extra mile, setting the rate at 0.35%. It surprised/shocked the market, citing the economy’s resilience amid surging inflation.

Such developments witnessed the Australian dollar (AUD) soaring across the Forex board. The assets hiked against peers like the New Zealand dollar and the U.S dollar. Though the AUD saw significant gains, AUD/USD didn’t record remarkable upticks. Though the pair climbed past 0.71, the overall attitude shows the market rebounded near the 2022 area.

Fed Decision Escalates

The hawkish tone of the Fed Reserve had other central banks rethinking their financial policy stance. For that reason, today’s rate increases by the Australian bank might reflect the Fed’s previous or upcoming rate hikes, at least for AUD/USD traders.

The United States dollar’s strength impacts U.S exports. As witnessed the past week, the United States recorded reduced exports due to a strong currency. That saw the U.S economy shrinking in 2022 Q1. Remember, two successive quarters of declined economic growth translates into recession.

That means Fed has to act with care. Nevertheless, the market targets a 50bp rate increase during the FOMC Wednesday’s meeting (tomorrow). That shows the U.S dollar could climb high in the near term rather than dipping.

Meanwhile, a hawkish tone by Fed might propel the dollar higher, therefore impacting economic growth and exports. Such developments show AUD/USD investors will unlikely purchase the pair with assurance until the Fed releases tomorrow’s statement.

What are your expectations about the upcoming rate decision by Fed? More so, is the economy approaching a recession? You can use the section below to share your opinions.

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