Monthly Wrap: AUD – Australian dollar slips after below-forecast RBA rate hike

Philip McHugh October 27th 2022 - < 1 minute read

Key takeaways:

  • Australian dollar falls amid downbeat data releases.
  • RBA interest rate hike underwhelms.
  • AUD Monthly lows: £0.55, $0.61, €0.63, NZ$1.09, C$0.86
  • AUD Monthly highs: £0.60, $0.65, €0.67, NZ$1.14, C$0.89

The end of September saw the Australian dollar firm on the back of above-forecast retail sales figures. Upbeat industrial production figures from China also pushed the ‘Aussie’ higher amid hopes for China’s economic recovery.

The Reserve Bank of Australia’s (RBA) October meeting drove an initial slump in the currency. The RBA disappointed markets with a below-forecast interest rate hike of just 25bps versus forecasts for a 50bps increase.

Disappointing trade data in the days following the RBA’s decision also weighed on AUD. Whilst forecasts had predicted a healthy expansion, Australia’s trade surplus narrowed to a six-month low.

The currency did find some support following the release of the minutes from the RBA’s October meeting. The minutes signalled that more interest rate hikes from the central bank were on the cards.

The Australian dollar came under renewed pressure as September’s unemployment rate remained at 3.5%, as investors began to pare back RBA rate hike bets.

A shock contraction in Australia’s service sector also weighed on AUD exchange rates in the last week of October. Before an above-forecast inflation print helped the currency to recover some ground near the end of the month. Third quarter inflation printed above forecasts at 7.3%, reviving rate hike bets.

Looking to November, investors will be hoping for a more hawkish interest rate hike from the RBA. Will another 25bps rate hike come as a disappointment to AUD investors?

Key Chinese economic data later in the month will also be watched for signs of the country’s recovery. If the world’s second-largest economy continues to struggle then demand for Australian’s exports could continue to weaken.

Written by
Philip McHugh

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