[MARKET UPDATE] Aussie surges on RBA's first hike in two years; DXY softer intraday but off worst levels

• DXY resumed trade overnight on a softer footing following yesterday's post-ISM recovery (which printed its first expansion in 12 months and at the fastest pace since 2022), but the index has been coming off worst levels in recent trade to edge back towards overnight highs (97.538), with price action still contained to yesterday's 97.008-97.733 parameter at the time of writing. Recent Fed commentary saw Bostic argue that one or two rate cuts would put them at neutral and said it's premature to say that the inflation job is done. On the data front, it was also announced that the BLS has delayed the December JOLTS report due today and the January NFP report that was scheduled for Friday owing to the partial government shutdown. With a House vote expected as early as today, the data could be published next week if the vote passes, ING posits.
• Antipodeans are firmer with outperformance in the AUD amid the rebound in risk appetite and metal prices, while further upside was seen after the RBA meeting, where the central bank hiked the Cash Rate by 25bps to 3.85%, as expected, and stated inflation is likely to remain above target for some time. Governor Bullock declined to provide any forward guidance on the future path of interest rates. AUD/USD has come off best levels amid the aforementioned recovery in the DXY but still holds onto most of its gains in a 0.6945-0.7050 current daily range.
• USD/JPY tested yesterday's high (155.79) amid the recovery in the USD with the pair currently towards the top end of a current 155.29-155.81 range after the pair rose back above its 100 DMA on Friday. Overnight, Japanese Finance Minister Katayama clarified regarding PM Takaichi's comments over the weekend and said the PM talked about FX benefits as a general fact and didn't specifically emphasise merits in a weak JPY.
• EUR/USD posts mild gains but trades off best levels amid the intraday recovery in the DXY. French inflation printed sub-forecasts with the single currency seeing mild gradual losses since release. Traders look ahead to Thursday's ECB where no policy setting changes are expected but EUR commentary will be in focus. Back to today, EUR/USD trades well within yesterday's 1.1776-1.1875 band, whilst OpEx sees chunky near-the-money clips for the pair: 1.1745-50 (1.1bln), 1.1785-90 (1.2bln), 1.1800-05 (1.1bln), 1.1820 (461mln), 1.1850 (3.9bln), 1.1865-75 (1.1bln), 1.1890-1.1900 (1.3bln).
• GBP/USD is relatively uneventful within yesterday's 1.3623-1.3715 range, with UK specifics light ahead of Thursday's BoE announcement and MPR, in which a hold is widely expected, with focus on the vote split. Desks are in unison that a hold is a done deal, although views are split between a 6-3 vote and a 7-2 vote. Desks are in unison the MPC will maintain the “gradual downward path” guidance.

The Australian dollar (AUD) is experiencing a notable surge following the Reserve Bank of Australia's (RBA) decision to hike interest rates for the first time in two years, indicating persistent inflation concerns. This rate increase reinforces a hawkish stance, affecting risk sentiment and providing a general boost to the AUD despite a recovery in the USD index (DXY). Traders should watch for potential implications on broader market sentiment and the future direction of monetary policy.