AUD/USD soars above 0.6680 as RBA surprisingly elevates interest rate by 25 bps to 3.85%

• AUD/USD has jumped strongly above 0.6680 as RBA has hiked rates surprisingly by 25 bps to 3.85%.
• The RBA went for a hawkish interest rate policy despite consistently declining Australian inflation.
• The USD Index is expected to reclaim its immediate resistance of 102.20 a break above the same will gear for a firmer rally.

The AUD/USD pair has climbed swiftly above 0.6680 as the Reserve Bank of Australia (RBA) has hiked interest rates surprisingly by 25 basis points (bps) to 3.85%. The street was anticipating an unchanged interest rate policy.

RBA Governor Philip Lowe has hiked the Official Cash Rate (OCR) to 3.85% despite the monthly Australian Consumer Price Index (CPI) consistently declining from December. From a peak of 8.4%, the Australian CPI has already decelerated to 6.3% in March. Also, a further decline in inflationary pressures is expected as RBA policymakers are expecting a slowdown in the Australian economy.

Going forward, the Australian Dollar will dance to the tunes of Caixin Manufacturing PMI (April) data, which will release on Thursday. As per the consensus, the economic data is seen improving to 50.8 from the former release of 50.0. Expansionary Fiscal and monetary measures from the administration and the People’s Bank of China (PBoC) respectively are supporting manufacturing activities and the overall demand.

It is worth noting that Australia is the leading trading partner of China and upbeat manufacturing activities will also support the Australian Dollar.

Meanwhile, the US Dollar Index (DXY) has rebounded after sensing support near 102.00. The USD Index is expected to reclaim its immediate resistance of 102.20 a break above the same will gear for a firmer rally. Anticipation of one more rate hike from the Federal Reserve (Fed) is expected to keep the USD Index in the driving seat.

Apart from that, US ISM Services PMI (April) data will be keenly watched. As per the consensus, ISM Services PMI (April) is seen higher at 53.1 from the former release of 51.2. Also, New Orders Index is expected to jump to 57.0 vs. the prior release of 52.2.