Australian Dollar retakes 1.2400 vs New Zealand Dollar after RBA's 25 bps rate hike

The AUD/NZD cross reverses a modest Asian session dip to the 1.2360 area and jumps to a three-day high after the Reserve Bank of Australia (RBA) announced its policy decision. Spot prices, however, lack follow-through buying and currently trade just above the 1.2400 mark, up around 0.15% for the day.

As was widely anticipated, the Australian central bank raised the Official Cash Rate (OCR) by 25 basis points (bps) to 4.60%, or the highest since 2011 at the conclusion of the September monetary policy meeting. In the accompanying policy statement, the RBA noted that the upside risk to inflation is materialising and reiterated that it remains focused on ensuring high inflation does not become embedded. This leaves the door open for additional tightening, which, in turn, offers some support to the Australian Dollar (AUD) and the AUD/NZD cross.

Aussie bulls, however, seem hesitant and opt to wait for more cues about the RBA's future policy path. Hence, the focus will remain glued to RBA Governor Michele Bullock’s comments at the post-meeting press conference. The outlook will play a key role in influencing the AUD and provide some meaningful impetus to the AUD/NZD cross. In the meantime, bets that the Reserve Bank of New Zealand (RBNZ) will raise its Official Cash Rate (OCR) on October 28 should support the New Zealand Dollar (NZD) and contribute to capping spot prices.