Aussie sinks as RBA surprises with short hike; the pound sterling is standing tall

TOKYO, Oct 4 (Reuters) – The Australian dollar fell on Tuesday after the country’s central bank surprised markets with a weaker-than-expected interest rate hike, while the pound sterling extended its rally in the aftermath of the U.K. government’s about-face on controversial tax cuts.

The Aussie fell 0.97% and last traded 0.5% lower at $0.6482.

The Reserve Bank of Australia said it decided to slow the pace of tightening because the cash rate had risen significantly in a short time, although policymakers left the door open for further hikes.

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“Obviously the RBA hasn’t been convinced by what other central banks are doing, so that means they have no concerns about the exchange rate here,” said Ray Attrill, head of the FX strategy at National Australia Bank. In Sydney.

“There is no evidence yet that other central banks are on the verge of reducing the aggressiveness with which they are tightening policy, (so) I think it makes sense that the Aussie is below 65 at the moment.”

Prior to the RBA’s decision, the risk-sensitive currency had been trading a bit below the upper end of its range since September 23 at $0.6537. It fell to a 2.5-year low at $0.63635 last week, weighed down by concerns over the global recession.

The pound rose 0.08% to $1.1333 after hitting $1.13435 previously, the highest level since September 22, the day before the new government rocked markets with its mini-budget cuts massive taxes financed by increased borrowing.

British Prime Minister Liz Truss was forced to scrap the plan on Monday amid a party rebellion. Read more

The euro also hovered near the highest since September 22, last changing hands up 0.15% to $0.9838.

The U.S. dollar lost some support on lower Treasury yields overnight after local economic data showed a slowdown in manufacturing, hinting that aggressive rate hikes from the Federal Reserve are on the way. are already being felt.

The dollar index – which measures the currency against six peers including the pound and the euro – was roughly flat at 111.55, not far from Monday’s low of 111.46, a level seen for the last time on September 23. It had hit a two-decade high of 114.78 last Wednesday.

On Monday, the Institute for Supply Management (ISM) survey showed U.S. manufacturing activity was the slowest in nearly 2½ years in September as new orders contracted, with a measure of the inflation at the factory gate decelerating for a sixth consecutive month.

The Commonwealth Bank of Australia, however, predicts that the pound’s respite will be short-lived and the dollar’s rally will continue.

Over the coming month, “the USD may remain high as the FOMC (Federal Open Markets Committee) continues to climb aggressively and (the) global economy slips into recession,” the ABC strategist wrote. Joseph Capurso in a client note.

He also noted that “global recession risks may cause the pound to fall significantly” and that “the UK’s weak economic outlook will keep the pound under pressure” in the medium term.

The greenback was up 0.14% at 144.77 yen, holding below 145 after briefly rising above that level on Monday for the first time since Japanese authorities stepped in to support their currency on September 22.

Japanese Finance Minister Shunichi Suzuki reiterated on Monday that the authorities were ready to take “decisive” action on the foreign exchange market if the “sudden and unilateral” movements of the yen persist.

The New Zealand Kiwi Dollar weakened 0.34% to $0.56995, although it is still near the top of its range since September 26. while giving odds of 29% on a 75bp raise.

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Reporting by Kevin Buckland; Editing by Sam Holmes and Lincoln Feast

Our standards: The Thomson Reuters Trust Principles.

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