The Australian dollar bounded a cent higher on Tuesday to again threaten parity with the US dollar after the Reserve Bank of Australia (RBA) surprised with a rate rise and signalled more were likely. Seconds after the RBA raised interest rates by 25 basis points to 4.75 percent, the Australian dollar tore higher to $0.9981, from $0.9885. It was on course to test resistance at its 28-year high of $1.0004, hit on October 15.
The Australian dollar shot up as far as NZ$1.3069, from NZ$1.2908 before the rate decision. For the day, it was up 1.28 percent, its biggest daily gain in 14 months. Against the US dollar the kiwi was up at $0.7662, after it touched a 27-month peak of $0.7693 in offshore trade.
The move, predicted by only a minority in the market, caused swap rates to jump while bill and bond futures slumped. One-year swap rates climbed to 5.07 percent, from Monday's 4.98 percent. The move only heightened the contrast with the Federal Reserve which is widely expected to ease policy further on Wednesday, stretching the gap between two-year yields to the widest since early 2008 at 466 basis points.