The Australian dollar managed to remain around $0.90 against the USD yesterday.

Although the RBA raised interest rates by 0.25% to 4.00%, the move was largely expected by the market and thus this did not have a material impact on the currency pair.

The Australian dollar is positively correlated to domestic interest rates, because higher rates enhance the appeal of the local currency to foreign investors. This has the effect of bidding up the value of the local currency.

The AUD was stronger the previous night, on expectations the Reserve Bank would raise interest rates.

However, the actual news of the rate rise, announced at 2.30pm, saw the AUD head lower after an initial jump higher.

The RBA said rates remain “lower than average”.

After the decision, most analysts agree that further rate rises are on the way, although there is no reason to believe the RBA will continue the monthly rate hikes we saw toward the end of last year.

The Australian dollar was rising in anticipation of the announcement but sold off on the release from the RBA. This is a good example of ‘buy the rumor, sell the fact’.

In any case the moving averages are still bullish and this should see the AUDUSD continue to be well supported over the coming sessions.