Dollar Soars, Aussie Falls Amid Rate Hike Paradox

The US dollar index has been steadily rising over the past six sessions, with every swing high and low moving higher. This slow grind is harder to trade against than a fast spike, as it means capital is continuously being converted into dollars.

The Australian dollar, on the other hand, fell 2.02% in the same period, despite the Reserve Bank of Australia raising its cash rate to a 15-year high of 4.60%. The AUD/USD pair broke below 0.7000 and hit a two-month low at 0.69584.

This paradox is not limited to the currency market. Australian equities, including the S&P/ASX 200, rose about 0.8% on the same day, despite the rate hike. Equity investors are treating the tightening as fully priced.