The RBA's interest rate hike today does not have a positive impact on the Australian dollar exchange rate for two reasons.

The Australian dollar exchange rate strengthened significantly against the US dollar throughout last week. However, the AUD/USD rapidly plunged by more than 1% on Tuesday (November 7th). The trigger for this was the RBA's announcement of an interest rate hike alongside a dovish policy directive.

audusd

This morning, the Reserve Bank of Australia (RBA) announced a 25 basis point increase in interest rates to 4.35%. The RBA had previously held off on raising interest rates for four consecutive policy meetings but was forced to do so due to relatively high inflation data in Australia for the third quarter.

Unfortunately, the RBA's interest rate hike did not have a positive impact on the Australian dollar exchange rate for two reasons. First, the consensus had long anticipated this decision. Second, the RBA removed the message "further tightening may be required" from its latest policy guidance.

Carol Kong, a strategy expert at the Commonwealth Bank of Australia (CBA), stated that AUD/USD had initially surged above 0.6500 following the RBA's announcement of a widely anticipated 25bp interest rate hike. However, it later weakened to around 0.6430 as the market absorbed the slightly more dovish statement from the Governor. She noted that the significant shift was in the modification of the tightening bias, which became slightly softer.

An increasing number of analysts believe that the RBA's interest rates may have already reached their peak, leading to a decline in AUD/USD. CBA no longer expects further RBA interest rate hikes. Westpac believes that the RBA is unlikely to raise rates again in December, although they see a slight possibility of further increases in early 2024.

China's economic data has also weighed on the Australian dollar, as it has not been able to sustain the expected global recovery. China's Trade Balance data released this morning showed stronger import performance, but exports declined almost twice as fast as previously estimated. If China's business continues to falter, major trading partners of China, including Australia and New Zealand, are at risk of experiencing deeper economic slowdowns.