AUD up on RBA rate rise to 4.25%

THE Australian dollar gained in Asia trade today as the Reserve Bank of Australia's decision to raise interest rates for the fifth time in six meetings instilled confidence in the outlook for the Australian economy. Bond prices edged lower on the RBA decision, with short-dated bonds particularly weak.

In the first session following an extended Easter holiday weekend, traders were met with choppy action throughout the day. The Australian dollar looked to extend recent gains early in the day after being helped over the weekend by a better-than-expected US non-farm payrolls report that lifted more growth sensitive currencies around the world.

However, reports that Greece wanted to amend a recently signed agreement with the EU weighed heavily late in the morning. The local currency was also hurt during the morning by a growing feeling the RBA wouldn't hike its key cash rate in the afternoon, according to traders. That feeling proved to be incorrect, however, with the RBA raising its key cash rate 25 basis points to 4.25 per cent, leading to a rally in the Australian dollar against all major currencies.