The Reserve Bank of Australia (RBA) lifted the cash rate to 3.85% and said "some further" tightening may be required to ensure that inflation returns to target in a reasonable timeframe. That sent the Australian currency 1.2% higher to 0.6712 after being mired near 66 cents for most of the past week "I would think the RBA now thinks they need to see a 4 in front of the cash rate before thinking they might be done," said Ray Attrill, head of FX strategy at National Australia Bank. "Certainly the data flow since April has been on the strong side," he added. "It's very probable that another one is to come, though whether it's as soon as June remains to be seen." The New Zealand dollar followed in the Aussie's slipstream rising 0.55% to $0.6201. <NZD=D3.
Elsewhere, the yen remained pressured by last week's Bank of Japan decision to maintain ultra-low interest rates, and the dollar gained as much as 0.23% to reach 137.78 yen for the first time since March 8. A move above 137.90 would be the highest level this year. The yen's levels versus European currencies were more dramatic. The euro on Tuesday added 0.3% to 151.42 yen , a new high since September 2008. Sterling hit 172.31 yen, its highest since early 2016, and the Swiss franc is at its highest against the yen since at least 1982 according to Refinitiv data. The Aussie dollar was at 92.29 yen, up nearly 4% in three trading sessions. "The sign that the BOJ is not going to change its negative interest rate policy any time soon gave the green light for speculators to put yen carry trades back on," said Naka Matsuzawa, chief Japan macro strategist at Nomura Securities. In carry trades, investors borrow in low yielding currencies to invest in higher yielders. With Japanese rates pinned near zero, the yen has long been an attractive currency with which to fund such trades.
"The odds of the Fed continuing on the rate hike process, rather than rate cuts, is now a bit higher," Matsuzawa said. In Europe, the pound gained 0.1% to $1.2508, and the euro gained 0.16% to $1.09935 as investors waited for European bank lending data.
Those figures, Jim Reid Deutsche Bank strategist said in a morning note, will play a part in whether the ECB raises rates by 25 basis points at its Thursday meeting, as markets currently think is more likely, or 50 bps.
Euro zone CPI data is due as well, which Reid said "may also have an influence (on the ECB), but the regional prints last week didn’t suggest any big hawkish surprises."
The Federal Reserve meets Wednesday, and markets consensus is firmly on a 25 basis point rate increase at that meeting.
Barring surprises, the focus on whether the U.S. central bank indicates that it expects to pause rate increases after this meeting, or if it keeps alive the possibility of another hike in June or later. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ World FX rates ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting by Kevin Buckland; Editing by Shri Navaratnam, Lincoln Feast and Christina Fincher)
