AUD/USD falls to 0.6405/10 after RBA raises interest rate by 25 basis points for the second time in a row

• AUD/USD has fallen sharply to near 0.6405 for the second consecutive interest rate hike of 25 basis points
• DXY has dropped to 111.25 as investors shed uncertainty over Fed policy.

The AUD/USD pair has suffered a sharp decline of about 40 pips to approach 0.6405, as the Reserve Bank of Australia (RBA) has raised its Official Cash Rate (OCR) by 25 basis points (bp) for the second time. The decision has remained in line with projections and the Official Cash Rate (OCR) has increased to 2.85%. RBA Governor Philip Lowe has preferred a less aggressive policy to keep the economic outlook in line with the main objective of achieving price stability.

This week the Australian Bureau of Statistics reported the third quarter inflation rate at 7.3%, above the consensus of 7.0% and the previous release of 6.1%. Economist responses on the rate projections were mixed, between continuing a 25 basis point rate hike, as reported in October, or returning to a 50 basis point rate hike structure.

Earlier in Tokyo, AUD bulls were also bolstered by the release of Caixin Manufacturing PMI data. Economic data came in at 49.2 vs. forecasts of 49.0 and the previous release of 48.1. It should be noted that Australia is one of China’s main trading partners and that the increase in manufacturing activities in the Asian giant is a support for the antipodean currencies.

Meanwhile, the dollar index ( DXY ) has seen a sharp drop to close to 111.25 points. The S&P 500 futures have bounced in the Tokyo session after a bearish Monday. The basket of 500 stocks has recovered half of Monday’s losses and points to more gains. Additionally, the 10-year US Treasury yield has dropped to 4.03%.

Fed Chairman Jerome Powell is expected to raise interest rates by 75 basis points for the fourth time as inflationary pressures have yet to show signs of exhaustion.