Synopsis: HSBC reports a significant drop in the Australian Dollar (AUD) following the RBA’s 25 basis point rate hike. This unexpected market behavior supports HSBC’s medium-term bearish perspective on the AUD based on three primary factors.

Key Points:

• Hawkish Statement Reordering: The RBA’s statement highlighted growing inflation risks, hinting at an upward revision of inflation forecasts and a downward revision in unemployment rate forecasts.
• Dovish Forward Guidance: Despite hawkish elements, the RBA presented a more dovish outlook, shifting from a tightening bias to a stance that is more reliant on incoming data.
• Negative Market Reaction: The market's negative response is partly attributed to concerns about the RBA being "behind the curve," with real yields deteriorating.

HSBC's Three-Factor Bearish View on AUD:

1. Global Growth Concerns: Slowing US growth may herald broader economic troubles, affecting not only the AUD but also the Eurozone and China.
2. Relative Rates Unfavourable: Recent rate movements haven't been in AUD's favor, and the RBA’s actions have not met the high expectations set by a steep OIS curve.
3. China's Growth Outlook: The anticipation is that China will not be providing a supportive backdrop for the AUD in the foreseeable future.

Conclusion:

The AUD’s unexpected fall despite the RBA's rate hike reinforces HSBC’s bearish stance, with the bank citing global growth concerns, relative rate dynamics, and China’s economic outlook as key factors. HSBC maintains a cautious medium-term view on the AUD, suggesting that the currency may face further headwinds.