Aussie Rates Hit 10-yr Highs

The RBA continued with its tightening program overnight. The December rates meeting saw the bank pressing ahead with a further .25% rate increase, as expected. Additionally, the bank signalled that further hikes would likely be necessary given the inflationary backdrop, warning that the path of monetary policy was not set in stone and is subject to change.

This latest hike takes Aussie rate sup to 3.1%, their highest level in 10 years. Furthermore, the outlook given at the meeting and language around potential further increases caught some players off guard. In line with the slower pace of tightening seen over recent months, some were looking for the RBA to a signal a forthcoming pause on rate hike. However, with the bank keeping its options open and warning that further hikes might be needed, there are still upside risks.

Further Hikes Ahead

Looking ahead, the key factors to watch for AUD will be labour and inflation data, with governor Lowe citing these two inputs as key for determining monetary policy. Should consumer prices start to cool more quickly, this will no doubt fuel expectations of a slower pace of hiking, turning focus back towards a potential pause. However, should inflation remain sticky at higher levels, this will keep the need for further rate hikes alive, and should underpin AUD.

Technical Views

AUDUSD

The rally in AUDUSD off the YTD lows has seen the market breaking above the bearish trend line from YTD highs. For now, the move has stalled into a test of the .6857 level resistance. However, while the market holds above the broken channel top, the focus is on a break of the current highs and a continuation towards the .7103 level next. To the downside, .6535 is the main support to note.