By Wayne Cole
SYDNEY, Feb 7 (Reuters) - The Australian dollar jumped
on Tuesday after the country's central bank hiked interest rates
for a ninth straight policy meeting and said "further increases"
would be needed, a more hawkish outlook than many had expected.
The Aussie was up 0.8% at $0.6938 , recouping all of
an overnight fall but still short of last week's eight-month
peak of $0.7158.
The New Zealand dollar added 0.3% to $0.6325 ,
bouncing from a low of $0.6271 touched overnight.
The Reserve Bank of Australia (RBA) lifted its cash rate by
25 basis points to a decade-high of 3.35%, much as the market
expected, but surprised some by saying further "increases" would
be necessary and implying more than one more hike.
The central bank also omitted its previous condition that
policy was not on a "pre-set path", suggesting further rate
rises were more likely than not.
"Any expectations around a pause in the hiking cycle were
largely dissipated on explicit comments around the need for
further rate hikes, a comment that has embedded a hawkish bias
to remarks," said Dwyfor Evans, head of APAC macro strategy at
State Street Global Markets.
"The hawkish report will give the AUD some support against
other G10 central banks where the hiking cycle is well
discounted."
The RBA also noted that core inflation had been higher than
expected at 6.9% in the December quarter and emphasised that
higher rates were needed to ensure that inflation returns to its
target range of 2-3%.
Markets moved quickly to price in a top of 3.85% in the wake
of the decision, when most analysts in a Reuters poll had
thought rates would peak at 3.60%. Bond markets took it badly with three-year futures sliding 16 ticks to 96.740. That left them down over 25 basis
points since last week's upbeat U.S. jobs report added to the
risk of more tightening by the Federal Reserve.
Yields on 10-year bonds popped up to 3.59%,
having climbed 22 basis points in just three sessions.
The Reserve Bank of New Zealand (RBNZ) holds its next policy
meeting on Feb. 22 and is widely expected to lift rates by 50
basis points to 4.75% and also flag further tightening ahead
given inflation is running hot at 7.2%.
Markets imply rates will peak at 5.25%, a little below the
central bank's own projection of 5.5%. (Reporting by Wayne Cole; Editing by Jacqueline Wong)
Messaging: wayne.cole.thomsonreuters.com@reuters.net))
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.