Australia’s Surprise Rate Hike: Market Watchers React

From MarketBeat:

The dollar is feeling pressure and commodities are rising in response to the Reserve Bank of Australia’s (RBA) surprise rate hike early Tuesday. Here’s the top of The Journal’s story:

Australia on Tuesday became the first G-20 country to raise interest rates since the start of the financial crisis, breaking the ice for other relatively healthy economies to follow suit. The surprise move — which came earlier than markets expected — is a signal that the great global monetary loosening is beginning to reverse.

Australia’s rate increase “is a game changer,” says Sanjay Mathur, economist at RBS in Singapore. “No central bank wanted to be seen as the ugly duckling and be the first. Now that they’ve done it, theoretically it paves the way for tightening by other central banks.”

For stateside short-term traders, the Aussie central bank’s move seems to set the stage for a bit of a bounce in markets ahead of the arrival of third-quarter earnings season.

But what about the broader implications of the surprise increase? Does it increase the prospect of tightening from the Fed anytime soon? Here’s a smattering of opinions we’ve seen from market watchers so far this morning.

Brown Brothers Harriman: The RBA hike and Gov Swan’s hawkish statement also reminds the market the US is lagging behind Australia and the Norges Bank where both are expected to hike in Q409. The RBA move reinforces the reason for US dollar weakness; that interest rate differentials continue to favor selling the U.S. dollar against the foreign currencies.

Miller Tabak: The move to hike rates 25 bps to 3.25% by the RBA was a surprise and in clear contrast to the Fed, whose Dudley repeated that rates will stay very low for a while. ...MORE