Australian Dollar Rises On RBA's Rate Hike Decision

(RTTNews) - The Australian dollar strengthened against other major currencies in the Asian session on Tuesday, after the Reserve Bank of Australia lifted its benchmark rate for the second straight time as the conflict in the Middle East poses material risk to inflation.

In a close call, the policy board, governed by Michele Bullock, decided to hike the cash rate target by 25 basis points to 4.10 percent.

The decision was made by a majority vote, with five members voting to raise the rate and four seeking to hold it at 3.85 percent.

This follows the RBA's previous 25-basis-point hike in February, which was the first increase since November 2023.

Policymakers noted that the conflict in the Middle East has resulted in sharply higher fuel prices, which, if sustained, will add to inflation. Short-term measures of inflation expectations already increased.

The board also observed that there are material uncertainties about the outlook for domestic economic activity and inflation as well as the extent to which monetary policy is restrictive. Globally, the war in Iran poses substantial risks in both directions.

The bank said higher prices and prolonged uncertainty may cause growth to be lower in Australia's major trading partners and also in Australia.

Asian stock markets traded higher, amid a sharp pullback by the price of crude oil as market sentiment improved on hopes that more oil tankers could soon pass through the Strait of Hormuz. U.S. President Donald Trump called on other countries to send naval escorts to protect vessels in the Strait of Hormuz.

Tehran has also reportedly allowed a limited number of ships from certain countries, including Pakistan, India, and Turkey, to transit the critical waterway.

The pullback by oil prices helped ease recent inflation concerns, although the US Fed is still widely expected to leave interest rates unchanged when it meets later in the week.

In the Asian trading today, the Australian dollar rose to a 13-year high of 1.2149 against the NZ dollar, from yesterday's closing value of 1.2067. The aussie may test resistance around the 1.22 region.

Against the U.S. and the Canadian dollars, the aussie advanced to 5-day highs of 0.7094 and 0.9705 from Monday's closing quotes of 0.7072 and 0.9680, respectively. If the aussie extends its uptrend, it is likely to find resistance around 0.72 against the greenback and 0.98 against the loonie.

Against the euro and the yen, the aussie climbed to 5-day highs of 1.6214 and 113.02 from yesterday's closing quotes of 1.6268 and 112.49, respectively. The next possible upside target for the aussie is seen around 1.61 against the euro and 114.00 against the yen.

Looking ahead, Germany's ZEW economic confidence survey data is due to be released at 6:00 am ET. The economic confidence index is forecast to fall sharply to 38.9 in March from 58.3 in February.

In the New York session, U.S. ADP weekly employment data, U.S. New York Fed services activity index for March, U.S. Redbook report and U.S. pending home sales data for February are slated for release.