AUD Rallies Following Hawkish RBA

Heading into today’s European trading session, the risk tone is cautious. Asia-Pacific indices are negative on the session, yet measures of volatility are subdued and safe-havens mixed.

The ASX 200 is currently trading at -0.42% and the Hang Seng at -0.10%. The Nikkei 225, Topix and CSI 300 are all closed as Japan observes its Constitution Day and China its Labor Day bank holidays.

In the FX complex, it’s AUD leading to the upside as the RBA announces a 25 basis point hike, taking their Cash Rate to 0.35%, versus consensus of a 15 basis point hike to 0.25%. Additionally, the central bank signalled further hikes in the meetings ahead, leading market participants to wager on a faster tightening cycle than previously anticipated.

In contrast to AUD and leading to the downside are CHF and USD, with the latter holding just below current 20-year highs, with all focus for the currency fixed on this week’s FOMC policy decision in tomorrow’s US trading session.

Looking ahead, today’s European and US sessions are light on tier one data, with the next high-impact risk event being New Zealand employment data in the following Asia-Pacific session. Until then, expect ongoing themes to remain dominant, particularly monetary policy outlooks following the RBA and heading into the FOMC.