RBA hike rates by 25Bps as expected

RBA increased rates for 10th time to highest level since 2012

By Ahmed Azzam | @3zzamous | 7 March 2023

  • RBA raised rates for the 10th times

  • China import tumbled 10.2% on yearly basis

  • ECB’s Holzmann called for 50pbs

What’s happened in the markets?

The Reserve Bank of Australia raised the cash rate by 25bps to 3.6% at its March meeting, matching market consensus. Tuesday's move was the 10th rate hike since May 2022, which brought borrowing costs to their highest level since May 2012. At the same time, Australia's trade surplus declined to AUD 11.69 billion in January 2023 from a downwardly revised AUD 12.99 billion in December 2022 and below market forecasts of an AUD 12.5 billion gain. It was the smallest trade surplus since August, as exports rose less than imports. AUDUSD showed some weakness from the level of 0.6740 to 0.6700.

In China, imports to China tumbled 10.2% from a year earlier to USD 389.42 billion in January-February 2023 combined, compared with market estimates of a 5.5% fall and after a 7.5% drop in the previous period. Purchases of crude oil were down 1.3% YoY while those of natural gas and copper plunged by 9.4% and 9.3%, respectively.

What to watch?

ECB tone is one of the most important movers in the market. ECB’s Holzmann called for interest rates to be raised by 50bps at each of the next four meetings, and suggested a restrictive policy rate would start from 4%. Holzmann’s remark led to a drop in EU bonds and a surge higher in EUR pairs.

Today, Fed Chair Powell will begin his two-day testimony before the Senate and the House committees. US Economic Data was more resilient than expected last few weeks, pushing bets that the Fed will have to hike rates more than what expected, and rates will stay higher for longer as well. Most Fed members have also sounded hawkish, raising the prospect of a shift higher in March dot plot. If a similar message is conveyed by Chair Powell, we could see US Treasury yields getting above critical levels and USD reversing back to an uptrend.