AUD surges as the central bank raises rates; hints at more tightening.
After the Reserve Bank of Australia (RBA) raised rates by 25 basis points to 4.1%, the Australian dollar increased 0.8% to $0.6698, bringing about the 400 basis point tightening since May of last year. As markets shifted to price in a higher peak rate, bond rates increased.
Although many acknowledged that it would be a close call, markets and the bulk of economists have been leaning towards a pause.
The increase, according to RBA Governor Philip Lowe, intended to boost confidence that inflation will reach its target level by mid-2025.
When the central bank expects headline inflation to rise to the top of its target range of 2-3%.
Further tightening may be necessary to ensure that inflation returns to the target level, he added in his warning.
“The fight is still going on with rising wages in the public and private sectors, a higher monthly CPI, rising home prices, and still strong retail sales.
Rates may be poised to remain higher for a longer period of time. According to VanEck head of investment, Russel Chesler.
Given its authority, the RBA may be forced to raise rates much farther than the markets had predicted.
A 60% possibility of another raise in July is currently factored into the markets. The yield on the three-year note increased by 11 basis points to 3.656%.
The highest level since February, and the yield on the ten-year note increased to 3.807%, the highest level since early March.
