Australian Dollar Loses to Raging USD Despite Hawkish RBA Rate Announcement

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The Australian dollar surrendered early gains on Tuesday after the Reserve Bank of Australia (RBA) announced an expected 50 basis-points (bps) rate hike in the Australian session on Tuesday.

Expectations of a Solid Australian Dollar Comeback Cut Short

Analysts and traders had predicted a second consecutive 50 bps rate hike from the RBA. However, the rating announcement failed to deliver the hawkish outlook many had hoped for.

Meanwhile, the Japanese yen dropped to a 24-year low against the dollar as the greenback rode on the backs of a bump in US Treasury yields, while the euro extended its gains from a recent decline to a five-year low. At press time, AUD/USD trades at 0.86% in the red after falling to the $0.6780 mark earlier today.

RBA Governor Philip Lowe noted before the meeting that the bank could choose between raising rates by 0.25% or 0.50%, although many believe the bank could raise rates more aggressively following the US Federal Reserve’s 0.75% rate hike in June. Westpac strategist Sean Callow explained:

“We got a small wobble in the Aussie as the statement appears to confirm that if the RBA board did debate an option other than the 50 basis points we got, it was the 25 basis points that Governor Lowe flagged a couple of weeks ago, and not 75 basis points.”

Callow added: “No last-minute FOMC-style swing to more aggressive tightening.”

In other news, the US Dollar Index (DXY) recorded a sharp 1.06% bounce in the European session on Tuesday to tap a new two-decade peak at 106.28. As mentioned earlier, the dollar’s bullish performance was sponsored by a rebound in the 10-year Treasury yield from its multi-week Friday low of 2.7910%.