25bp Hawkish Hike from the RBA

The RBA hiked the cash rate target by 25 basis points to 3.35%

Underlying inflation was above expectations to 6.9%

Strong domestic demand is adding to the inflationary pressures
CPI is expected to decline this year due to global factors and slower growth in domestic demand
Medium-term inflation expectations remain well anchored, and it is important that this remains the case
The labor market remains very tight

Wages growth is expected to continue picking up due to the tight labor market and higher inflation

The board will continue to pay close attention to labor costs and the price-setting behavior of forms in the period ahead.

The RBA hikes the overnight cash rate by 25bp to 3.35% – its highest level since September 2012 – and warned of further increases in the months ahead. The two key words here are ‘increase’ and ‘months’ as it implies more than one hike over the coming months. And with rates at 3.35% it means the market pricing and consensus among economists for a terminal rate of 3.6% is not correct.

The past three reports have seen growth forecasts decelerate and inflation upwardly revised. Given the new monthly annual CPI read rose to 8.1% y/y, and trimmed mean and median inflation beat expectations, there’s a decent chance we’ll see CPI revised higher once more – which in itself could signal another rate hike or two. Wage growth has also been revised higher over the past three reports and could be taken as another hawkish cue should it be revised higher for a fourth.

AUD/USD found support around 50-day EMA and has since spiked higher, but bears may want to seek evidence of weakness around 0.6900 as it houses the monthly pivot point and broken trendline. Of course, should Powell fail to deliver the hawkish message, then it leaves AUD more wriggle room to unwind some of their post-NFP losses.