AUD Tumbles Below 0.7000 as RBA Rate Hike Fails to Boost Currency
The Australian Dollar (AUD) has dropped to fresh two-month lows against the US Dollar (USD), falling below the critical level of 0.7000, despite the Reserve Bank of Australia's (RBA) interest rate hike and Governor Michelle Bullock's comments hinting at further monetary tightening.
The RBA raised its benchmark interest rate by 25 basis points to 4.6%, its highest level in 15 years, citing upside risks to inflation stemming from high energy prices and signs of slowing economic growth.
In a press conference following the rate hike, Bullock reaffirmed that the board will rise rates again if needed and left all options open for September.
The AUD/USD pair dropped below 0.7000, hitting fresh two-month lows at 0.6978, as investors braced for strong US Personal Consumption Expenditures (PCE) Price Index data on Wednesday and another positive Nonfarm Payrolls reading on Friday to cement hopes of a further interest rate hike by the Federal Reserve (Fed) in October.
According to TD Securities, the policy backdrop remains supportive for the Dollar, as they expect the Fed to hike two more times (October and January). The economy can handle more restriction, and the Fed is now providing it, with the evolution of inflation data set to determine the extent and pace of hikes later in the cycle.