The RBA hiked rates by 25bps early on Tuesday morning sending the AUD lower. However, the AUD was also supported at the time by a more positive risk outlook which benefitted the AUD, so there were some mixed inputs into the reaction of the AUD. However, taking the RBA meeting in balance, it was a more dovish response for the following reasons:

1. Short Term Interest Rate Markets (STIR) saw a 50% chance of a 50bps hike. So, with the RBA opting for a 25bps hike that was a ‘surprise’.

2. STIR markets now see a lower terminal rate than one week ago. This was the Financial Source Implied Interest Rate Curve the day after the decision. The terminal rate fell to 3.65% from nearly 4.5% before the decision.

3. The RBA will be looking at the following metrics going forward to judge the pace of hikes. The size and timing of future interest rate increases will continue to be determined by the incoming data and the Board’s assessment of the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.

One thing to watch now is the NFP print on Friday. If we see a big beat in the headline jobs number then AUDUSD downside would look attractive for a scalp. However, a big miss and the AUDUSD pair could still move higher on a weaker USD and upside in stocks.