Impact of RBA Rate Hike on Global Currencies

rba rate hike

The U.S. dollar experienced a resurgence in early European trade on Tuesday, bouncing back from recent lows. Meanwhile, the Australian dollar took a hit following the Reserve Bank of Australia’s (RBA) indication of a possible end to its rate hike cycle.

The Dollar’s Rebound

The Dollar Index, which measures the greenback against six other currencies, rose 0.2% to 105.285, recovering from a near two-month low of 104.84 seen on Monday. The index had fallen 1.3% last week, marking its steepest decline since mid-July, following the Federal Reserve’s dovish signals on future interest rate hikes.

However, the tone shifted after Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, suggested more rate increases might be necessary to curb inflation. He stated that while the economy has shown resilience despite numerous rate hikes, the inflation issue is yet to be fully addressed.

Impact on Other Currencies

The euro fell 0.1% to 1.0701 following a greater than expected decline in German industrial production in September. This data adds to the growing evidence of economic difficulties in the eurozone’s largest economy, potentially leading to a technical recession by year-end.

GBP/USD dropped 0.2% to 1.2321, just shy of the seven-week high of 1.2428 it reached on Monday. This drop came despite data from market researcher Kantar showing British grocery inflation falling below 10% for the first time since July 2022, offering some respite for consumers ahead of the Christmas shopping season.

Aussie’s Decline Post RBA Meeting

The Aussie dollar fell 0.9% to 0.6429 after the RBA raised interest rates to their highest level in 12 years. However, a change in the bank’s forward guidance led traders to speculate that the rate hike cycle might be over, resulting in the Aussie dollar’s largest one-day percentage decline in a month.

Chinese Exports and the Yen

USD/CNY rose 0.2% to 7.2847 as China’s exports shrank more than expected in October, and the trade surplus narrowed to its weakest level in 17 months. USD/JPY rose 0.3% to 150.45, weakening past the key 150 level due to the strengthening dollar. (source)