TOKYO/LONDON, May 2 (Reuters) - The Aussie dollar leapt over 1% against the dollar on Tuesday after a surprise central bank rate hike, while the yen hit its weakest in 15 years versus the euro, as Bank of Japan dovishness continued to weigh and before closely watched euro zone data.
The Reserve Bank of Australia (RBA) lifted the cash rate to 3.85% and said "some further" tightening may be required to ensure that inflation returns to target in a reasonable timeframe.
That sent the Australian currency 1.2% higher to 0.6712 after being mired near 66 cents for most of the past week
"I would think the RBA now thinks they need to see a 4 in front of the cash rate before thinking they might be done," said Ray Attrill, head of FX strategy at National Australia Bank.
"Certainly the data flow since April has been on the strong side," he added. "It's very probable that another one is to come, though whether it's as soon as June remains to be seen."
The New Zealand dollar followed in the Aussie's slipstream
rising 0.55% to $0.6201.
Elsewhere, the yen remained pressured by last week's Bank of
Japan decision to maintain ultra-low interest rates, and the
dollar gained as much as 0.23% to reach 137.78 yen for
the first time since March 8. A move above 137.90 would be the
highest level this year.
The yen's levels versus European currencies were more
dramatic. The euro on Tuesday added 0.3% to 151.42 yen
, a new high since September 2008. Sterling hit
172.31 yen, its highest since early 2016, and the
Swiss franc is at its highest against the yen since at least
1982 according to Refinitiv data.
The Aussie dollar was at 92.29 yen, up nearly 4% in three
trading sessions.
"The sign that the BOJ is not going to change its negative
interest rate policy any time soon gave the green light for
speculators to put yen carry trades back on," said Naka
Matsuzawa, chief Japan macro strategist at Nomura Securities.
In carry trades, investors borrow in low yielding currencies
to invest in higher yielders. With Japanese rates pinned near
zero, the yen has long been an attractive currency with which to
fund such trades.
"The odds of the Fed continuing on the rate hike process,
rather than rate cuts, is now a bit higher," Matsuzawa said.
In Europe, the pound gained 0.1% to $1.2508, and
the euro gained 0.16% to $1.09935 as investors waited
for European bank lending data.
Those figures, Jim Reid Deutsche Bank strategist said in a
morning note, will play a part in whether the ECB raises rates
by 25 basis points at its Thursday meeting, as markets
currently think is more likely, or 50 bps.
Euro zone CPI data is due as well, which Reid said "may also
have an influence (on the ECB), but the regional prints last
week didn’t suggest any big hawkish surprises."
The Federal Reserve meets Wednesday, and markets consensus
is firmly on a 25 basis point rate increase at that meeting.
Barring surprises, the focus on whether the U.S. central
bank indicates that it expects to pause rate increases after
this meeting, or if it keeps alive the possibility of another
hike in June or later.
(Reporting by Kevin Buckland;
Editing by Shri Navaratnam, Lincoln Feast and Christina Fincher)
