A$ Surges On 50bps RBA Hike

The A$ has surged after the RBA hiked by 50bps. Only 3 out of 29 economists surveyed by Bloomberg forecast the move. Market pricing also wasn't skewed for a 50bps move.

• The initial reaction in AUD was to push above 0.7240, but we have steadily lost ground since then. This is likely to be on account of fresh USD gains elsewhere, with USD/JPY making fresh highs above 132.80.
• The A$ is a strong outperformer on crosses. AUD/JPY is above 95.50 to fresh cyclical highs, while AUD/NZD has risen to 1.1140, challenging levels from late April.
• Yields have shifted strongly back in AUD's favor, with the 2yr bond yield up 16bps. Futures are also higher, albeit volatile.
• As we noted earlier, the A$ has had a tendency to rally post RBA meetings this year. Today's outcome should put it in good position to do so once again, although given stronger USD sentiment elsewhere, the preferred play may be in crosses.
• The focus will shift to how quickly the RBA wants to get policy rates back to neutral. Futures implied rates are comfortably above 2% for October and close to 3% for year end, but as the RBA demonstrated today, it can still deliver a surprise.