FOREX-Aussie jumps on RBA hike; U.S. dollar on back foot after weak ISM

The Australian dollar jumped to its highest since mid-May on Tuesday after the Reserve Bank of Australia raised interest rates, in a decision that many analysts had said would be a close call between a hike and a pause. The U.S. dollar retreated further from last week's 2-1/2-month highs versus major peers after unexpectedly soft U.S. services data overnight firmed up expectations for a pause at the Federal Reserve's meeting next week, but clouded the policy outlook for the months ahead.

The Australian dollar jumped to its highest since mid-May on Tuesday after the Reserve Bank of Australia raised interest rates, in a decision that many analysts had said would be a close call between a hike and a pause.

The U.S. dollar retreated further from last week's 2-1/2-month highs versus major peers after unexpectedly soft U.S. services data overnight firmed up expectations for a pause at the Federal Reserve's meeting next week, but clouded the policy outlook for the months ahead. Leading cryptocurrency bitcoin languished below $26,000 after U.S. regulators sued Binance, the world's biggest cryptocurrency exchange.

The RBA raised the cash rate to an 11-year high of 4.1%, saying the hike would provide greater confidence that inflation would return to target within a reasonable timeframe, but adding that some further tightening may be required. The Aussie was last up 0.73% at $0.6665, after leaping as high as 0.6677, a level last seen on May 16.

"The RBA's second consecutive hawkish surprise should fuel an extension of the recent rally," taking it through the 200-day moving average at 0.6692 initially, and then on to the 100-day moving average at 0.6748, said Sean Callow, a strategist at Westpac. Meanwhile, U.S. rates have been a central focus for investors globally, with recent data and Fed rhetoric causing some volatility in the U.S. currency.

The dollar index - which measures the currency against six major peers - slipped 0.11% to 103.89, after a shaky few days that saw it rally to a 2 1/2-month peak at 104.70 on the final day of May, only to get knocked back by suggestions by Fed officials that they would skip a rate hike in June. However, hot employment numbers on Friday saw bets for a July hike ramp up, while the overnight weak services sector outcome has yet again clouded the outlook for rates.

The Federal Open Market Committee (FOMC) sets policy on June 14, and markets are now pricing in a 75% chance of the Fed standing still, a sharp jump from a 36% chance a week earlier, according to CME FedWatch tool. "The soft ISM services PMI was unexpected to say the least," said Tony Sycamore, a market analyst at IG Markets in Sydney. "Services have been a real pocket of resilience."

With no major U.S. data for the remainder of the week and Fed officials in a "blackout" period, "it looks to me like the dollar is in a bit of a holding pattern ahead of the FOMC meeting," Sycamore said. "That makes sense, because if you've got a position on here, you wouldn't want to add to it."

The dollar declined 0.05% to 139.49 yen, while the euro edged 0.11% higher to $1.0722. Sterling added 0.12% to $1.2450. Elsewhere, bitcoin attempted to find its feet around $25,780, after tumbling 5.1% overnight in its biggest drop since April 19.

The Securities and Exchange Commission (SEC) sued Binance and its CEO Changpeng Zhao on Monday for allegedly operating a "web of deception," saying the exchange artificially inflated its trading volumes, diverted customer funds, failed to restrict U.S. customers from its platform and misled investors about its market surveillance controls.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)