MUFG’s Lee Hardman reports that the Australian Dollar has gained nearly 6.5% against the US Dollar this year, supported by the RBA’s early rate hikes and hawkish comments from Deputy Governor Andrew Hauser. Markets now expect another RBA hike as soon as May, while MUFG continues to recommend a long AUD/GBP trade amid policy divergence with the more dovish Bank of England.

Australian Dollar supported by RBA divergence

"The Australian dollar has continued to outperform at the start of this year extending its advance to almost 6.5% against the US dollar."

"Hawkish comments from RBA Deputy Governor Andrew Hauser overnight have indicated that this month’s rate hike may not be a one off."

"He warned that inflation is still “too high” and remains a significant challenge to the RBA board, which can’t allow it to go on much longer."

"The hawkish comments have reinforced market expectations that the RBA will hike rates again as soon as May."

"We continue to recommend a long AUD/GBP trade idea which has been benefitting from widening expectations for policy divergence between the RBA and BoE who is expected to lower rates further as soon as next month."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)