Monthly Wrap: AUD – Australian dollar leaps as RBA surprises with above-forecast rate hike

Philip McHugh May 27th 2022 - 2 minute read

By Currencies Direct on May 27, 2022

Key takeaways:

  • Australian dollar (AUD) bolstered as RBA raises rates for first time in 11 years
  • Announcement that Shanghai lockdowns to end in June limits harm to Aussie
  • AUD Monthly lows: £0.56, $0.68, €0.66, NZ$1.09, C$0.89
  • AUD Monthly highs: £0.58, $0.73, €0.68, NZ$1.11, C0.92$

The Australian dollar (AUD) ended April on the backfoot despite a risk-on sentiment. An above-forecast rise to inflation for the first quarter of 2022 prompted some dip-buying however, potentially limiting significant losses for the currency.

The beginning of May saw the Reserve Bank of Australia’s (RBA) interest rate decision help push the ‘Aussie’ to monthly highs. The RBA hiked rates for the first time in 11 years to 0.35%, greater than expected, with the central bank promising more hikes were in the pipeline.

RBA Governor Philip Lowe stated that the move was necessary to combat the ongoing rise to inflation.

The beginning of May also saw significant headwinds for the ‘Aussie’ however after China encompassed a lockdown across the entire city of Shanghai. The strict ‘zero-Covid’ approach harmed the country’s economic output with export growth hitting a two-year low. Coupled with rising inflation, the figures prompted concerns of a global economic slowdown.

Later in May, Chinese authorities announced that the city’s lockdown measures would come to an end on 1 June. This likely helped AUD recover confidence in the back half of the month.

Evidence of a tight labour market also helped boost the Australian dollar this month. Figures showed the country’s unemployment rate falling to 3.9% in April, its lowest point since 1974.

The Australian elections caused some volatility in the currency after the country’s Labour party came to power for the first time in a decade.

Looking to the month ahead, a further rate hike from the RBA at their 7 June meeting could push AUD higher. The central bank is widely expected to act following the Reserve Bank of New Zealand’s (RBNZ) rate hike in May.

Ongoing fears of a global economic slowdown meanwhile, could harm the risk-sensitive ‘Aussie’ in the coming weeks.

Written by
Philip McHugh

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