The Australian dollar dropped to a two-month low on Tuesday even after the Reserve Bank of Australia delivered its fourth rate hike of the year. Traders instead focused on Australia's narrowing yield edge over the US, where the dollar index sat near a two-month high.
The Australian dollar broke below $0.7000 on Tuesday, dropping 0.4% to $0.6986 and touching its weakest level since July 29. The slide came even as the Reserve Bank of Australia raised its policy rate.
RBA hikes rates but can't lift the Aussie
The RBA lifted its key rate by a quarter point to a 15-year high, a decision the board under Governor Michele Bullock reached unanimously. Bullock warned that persistent underlying inflation, elevated energy costs, and weak productivity growth threatened price stability.
Bullock said in a post-decision press conference: "The board will raise interest rates again if that's what's needed to get inflation down."
But money markets had already fully priced in the hike. As a result, foreign exchange desks turned their attention to Australia's shrinking yield advantage over rising US borrowing costs, a gap that left the Aussie exposed to further losses.
Dollar holds near a two-month high
The Aussie's slide coincided with broader dollar strength. The US dollar index rose 0.2% to 101.37, its highest level since July 28, as it tracked the greenback against six major peers.
Source: Investing.com
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