Australian Dollar Rises post-RBA, February Rate Hike Possible Warns CBA

Image © RBA.

The Australian dollar rose after the Reserve Bank of Australia (RBA) delivered its last interest rate decision and assessment of the year.

Interest rates were left unchanged at 3.60% and gave no indication it will lower interest rates any further.

The initial market reaction was to sell Australian dollars, but this soon reversed and the currency is trading higher against all its peers by the time European markets walk in for the day.

Of note was the RBA acknowledging that the recent upside surprises in inflation data may be persistent.

"While market participants will need to wait for the minutes for confirmation, the RBA does not appear to be considering a hike," says a post-decision reaction from Commonwealth Bank of Australia (CBA).

"We consider there are enough positive elements in the statement to consider the next move will be a hike," it adds.

In fact, CBA thinks that hike will come before long:

"The next quarterly CPI released on 28 January could put a hike on the table at the 3 February meeting."

The Australian Dollar-U.S. Dollar exchange rate is at 0.6638 following the decision, but is yet to crack resistance at 0.6650.

The pound to Australian dollar exchange rate is at 2.0074, and looks to be targeting a move to 2.0.

The statement released by the RBA detailing its decision wasn't particularly notable for its guidance. But, analysts note the press conference took on a more hawkish tone.

Governor Michelle Bullock said the RBA's Board is uncomfortable with the level of inflation and that the debate from here is whether the Bank is on an extended pause or if it hikes given the risks have tilted to the upside.

"The hawkish tone also underwrites our upbeat AUD view, which continues to have to the highest positive trading weight in our macro quant portfolio," says a reaction note from TD Securities.