Dust Settles After Hawkish RBA Decision

The RBA delivered a larger than expected hike to the cash rate target on Tuesday, while setting the stage for further policy tightening. The hawkish tilt came about despite the ongoing election campaign, which sees Coalition and Labour locked in a tight race. It provided a boost to the Aussie dollar, which easily outperformed all of its G10 peers.

• As we have noted elsewhere, market pricing remains extreme vs. the reference points that the RBA provided yesterday (the Bank’s new economic forecasts are based on a year-end cash rate of 1.50 -1.75%, with eyes on a more “normal” interest rate of ~2.5%), ratcheting higher after yesterday’s decision, with no real receive side interest identified yet and a lack of a clear trigger to facilitate such interest. The RBA’s new, eye-watering inflation expectations will likely prolong this trend.
• Monthly & quarterly retail sales, S&P Global Services PMI and housing finance data headline the Australian docket today, with New Zealand jobs report also set to provide some interest.
• AUD/USD trades at $0.7100 at typing, little changed on the day. Bulls look for renewed gains past Apr 29 high of $0.7180 before setting their sights on Apr 25 high of $0.7261. Conversely, bears need a fall through May 2 low of $0.7030 before targeting Jan 31 low of $0.6985.