AUDUSD – a confusing reaction to a 25bp hike

7 Nov 2023

We had seen in interest rate futures pricing that the market had already gone some way to pricing a 25bp hike, and one suspects the leveraged community (hedge funds) had amassed a decent AUD long position. We can also see broad USD strength on the day, but the move we’ve seen from 0.6489 to 0.6404 has caught a few by surprise. The guidance in the statement was a trigger, with the wording tweaked from “some further tightening” will be needed to “whether further tightening” will be required. While there were other changes, the market took this one change as a dovish outlook. Aussie govt 3-year bond yields fell 9bp in response and looking at interest rate futures the market still sees more hikes in the future, but they have just pushed the timing back to a March/May window. Technically, the impetus to rally to 0.6600 has been lost and I expect some chop to play out now. It will take a day or two, but the market will forget this RBA meeting and the pair will revert to being a risk proxy and following S&P500 futures and HK50.