[LFX]

The AUD experienced a “game of two halves” over the past week. Last week the AUD sagged into the weekend as equity markets experienced a mini-correction, dragging down the price of riskier assets more broadly. In contrast, early this week, on the advice of well-watched newspaper columnists, expectations for the RBA Board meeting Tuesday ramped up from a slight 20% chance of tightening to a 60% chance. This added one cent to the AUD before the Board meeting, and on the news of the RBA pulling the trigger for a 25bp increase to 3.25% - which was a surprise to most analysts - pushed the AUD higher again to $US0.89.

Against the majors however, the performance was mixed, with the AUD losing against the relentless rise of the JPY, and for the first time in months losing ground against the CAD.

Looking ahead, the data flow may print on the weak side near-term. However, as the data will be dismissed as “old” (i.e. anything before this rate rise) it may attract little attention by the market. This could be a dangerous assumption as the pace of the RBA returning the cash rate to more normal levels is indeed highly data dependent. Indeed if the employment report overnight is very weak (especially if the unemployment rate finally breaches 6%) then expectations for a follow-up November tightening should be scaled back, deflating the AUD a little. The next key report will be consumer sentiment, taken after the “surprise” RBA tightening. If there is a calamitous fall in sentiment, then the RBA is more likely to maintain a moderate tightening path for sure. Then all eyes will be on the Jun qtr CPI outcome on October 28.