[cppene]

In line with the market consensus, the RBA increased its policy rate 25bp to 3.50%following its November Board meeting. The accompanying statement was also less hawkish than generally expected. The RBA emphasizes a gradual reduction in policy stimulus: "the Board's view is that it is prudent to lessen gradually the degree of monetary stimulus". The RBA also mentioned that the strong currency would help reduce tradeables inflation, which is a clear acknowledgement that the stronger currency is doing some of the RBA's work. Overall, the 25bp rate hike, combined with the relatively less hawkish accompanying statement, will likely weigh on the AUD ahead of important local data releases in the coming days. The AUD/NZD cross in particular may be in for a bit of a downward correction. The New Zealand labour force data released on Thursday may see the AUD/NZD cross resume its upward trend, however.

Market continues to look for AUD/USD to head toward parity in the coming six months. The RBA's statement indicates that it is keeping open the option to skip a rate hike in December, particularly if the local data do not remain strong. The local retail sales and building approvals data released tomorrow will continue to surprise to the upside and likely lead to the RBA hiking rates by 25bp again in December.