03.05.202207:10:00UTC+00Australian Dollar Surges As RBA Lifts Key Rate, Signals Further Hikes

The Australian dollar firmed against its major counterparts in the Asian session on Tuesday, after the Reserve Bank of Australia raised the cash rate from a record low and signaled a further liftoff in interest rates going forward to control a spike in inflation that runs well above target.

The policy board of the RBA headed by Governor Philip Lowe decided to lift the cash rate target by 25 basis points to 0.35 percent from 0.1 percent. Markets had expected a 15 basis-point hike.

The board also increased the interest rate on Exchange Settlement balances from zero percent to 25 basis points.

The Board judged that now was the right time to begin withdrawing some of the extraordinary monetary support that was put in place to help the Australian economy during the pandemic, the bank said in the statement.

The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected.

The Board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time, the bank said. This will require a further lift in interest rates over the period ahead.

The currency showed mixed trading against its key counterparts on Monday. While it fell against the greenback, it rose against the kiwi and the euro. Versus the yen, it held steady.

The aussie was higher by 1.4 percent against the greenback, at a 4-day high of 0.7148. The pair had finished Monday's deals at 0.7048. The aussie is likely to face resistance around the 0.75 region, if it gains again.

The aussie gained 1.3 percent against the yen, touching a 4-day high of 92.94. The pair was valued at 91.73 when it ended trading on Monday. Further rally in the currency may find resistance around the 95.00 region.

The aussie added 1.1 percent against the euro to hit a 4-day high of 1.4721. The euro-aussie pair was quoted at 1.4891 at Monday's close. The aussie may face resistance around the 1.43 region.

The aussie rose 1 percent to 1.1063 against the kiwi, its highest level since August 2018. The aussie had finished yesterday's trading session at 1.0951 against the kiwi. Should the aussie strengthens further, it is likely to test resistance around the 1.12 region.

The AUD/CAD pair touched a 6-day high of 0.9175 following the decision. At Monday's close, the pair was worth 0.9077. Next immediate resistance for the aussie is likely seen around the 0.93 level.

Looking ahead, German jobless rate for April, Eurozone jobless rate and PPI for March are due in the European session.

U.S. factory orders for March will be released in the New York session.