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Aug 02 - 10:55 AM

AUD: 3 Reasons Why The AUD Falls After The RBA 50bps Hike - Credit Agricole

By eFXdata  —  Aug 02 - 09:30 AM

Credit Agricole CIB Research discusses AUD reaction to the RBA August policy decision.

"The RBA increased its cash rate by 50bp to 1.85% as widely expected. The AUD weakened on the outcome of the meeting for several reasons, in our view. First, while the RBA continued to say the pace of timing of rate hikes will be determined by incoming data and events, the central bank also said the cash rate is “not on a pre-set path”. The market read this rhetoric as the RBA preparing to slow or even pause its rate hikes. We think the latter is highly unlikely..," CACIB notes. 

Second, the RBA has forecast a peak in inflation of 7.75% in H222, but then for inflation to come off to a bit above 4% in 2023 and around 3% (the top of its target band) in 2024. This is hardly a forecast of a steep fall in inflation and the RBA has inflation still running above its target two years from now. So, we think the market is overacting to this forecast profile.

Lastly, investors were likely waiting until after the RBA to sell the AUD given growing geopolitical tensions between the US and China, which we think will be the driving factor for the AUD in the coming days. Indeed, the RBA did not sound more hawkish and so has not provided any reasons to buy the AUD," CACIB adds. 

Crédit Agricole Research/Market Commentary


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