The Reserve Bank of Australia (RBA) hiked rates by 25bp to 0.35%, a slightly larger hike compared to consensus expectation of 15bp. AUD/USD jumped above 0.7140 following the decision, but AUD is unlikely to gain much long-lasting support in an environment where global growth risks are rising, economists at Westpac report.

AUD/USD could test 0.7160/90 in the short-term

“The combination of 25bps, the clear statement that ensuring that inflation returns to the target over time ‘will require a further lift in interest rates over the period ahead’ and that ‘the Board does not plan to reinvest the proceeds of maturing government bonds and expects the Bank's balance sheet to decline significantly over the next couple of years as the Term Funding Facility comes to an end’ meant that this was a more hawkish outcome than expected.”

“The AUD/USD quickly bounced to 0.7148 and we tend to see near-term risks that the move extends towards the 0.7160/90 region.”

“We remain of the view that the broad US dollar rise looks set to continue through this week’s Fed ‘super-tightening’ campaign and beyond. With global growth weakening, the aussie should remain on the back foot in coming weeks and dips below 0.70 are possible.”