May 03, 2023

The AUDJPY exchange rate rallied after a surprise interest rate hike from the Reserve Bank of Australia.

AUDJPY – Daily Chart

AUDJPY – Daily Chart

AUDJPY rallied above the 92 price level, with a resistance target at 93. The pair may look to test that level next. 

After a one-off pause last month, the Reserve Bank of Australia shocked borrowers and financial markets with another interest rate rise. The central bank lifted its cash rate target from 3.6% to 3.85%, resulting in the 11th increase in a year. Official interest rates have not been at this or a higher level since the cut to 3.75% in May 2012. The move caught many traders by surprise, with the market pricing in only a 13% chance of rates rising. 

Most bank economists expected the rate to remain on hold, but two significant banks had said that rates had peaked at 3.6%. 

Last week’s inflation drop had traders expecting no action from the RBA. However, Governor Philip Lowe said the board had paused last month to assess the impact of previous rises on the economy. Solid jobs and inflation figures meant it had to continue. 

“Inflation in Australia has passed its peak, but at 7% is still too high and it will be some time yet before it is back in the target range,” he said.

“Given the importance of returning inflation to target within a reasonable timeframe, the board judged that a further increase in interest rates was warranted today.” 

“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve,” Mr Lowe added. 

Pradeep Philip, head of rival Deloitte Access Economics, said the RBA was now risking a recession. 

“Today’s rate increase shows that the Reserve Bank is still playing recession roulette, despite briefly and sensibly walking away from the table when it paused rate hikes last month”. 

“Meanwhile, hundreds of thousands of mortgage holders will still see their repayments surge as pandemic-era low fixed rates revert to a variable while businesses continue to be squeezed. 

“Last week’s CPI data showed that inflation is clearly slowing, and the fact it is doing so while unemployment remains at record lows is a good thing. And, as the RBA statement notes, despite record low unemployment, wage growth has not spiralled and is still consistent with the inflation target.”

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