Investing.com - The Australian dollar rallied more than 1.5% against the U.S. dollar on Tuesday after the Reserve Bank of Australia shifted its policy stance away from easing rates, citing higher than forecast inflation.
AUD/USD hit 0.8914, the highest since January 16 and was last up 1.61% to 0.8892.
The pair is likely to find support at 0.8800 and resistance at 0.8970.
The RBA left rates on hold at 2.5% on Tuesday, saying “the most prudent course is likely to be a period of stability in interest rates."
The central bank said fourth quarter inflation was higher-than-expected, adding that the rise in inflation might "be explained in part by faster than anticipated pass-through of the lower exchange rate”.
The RBA said slightly firmer consumer demand foreshadowed a solid expansion in housing construction and this, along with improved business conditions and confidence are positives. However, the bank warned that waning resources investment and weak labor demand and wages offset those factors, setting the stage for a period of rate stability.
The RBA also indicated that it is happier with the current level of the Australian dollar.
"The exchange rate has declined further, which, if sustained, will assist in achieving balanced growth in the economy," the bank's statement said.
Elsewhere, the Aussie was also sharply higher against the yen and the New Zealand dollar, with AUD/JPY jumping 1.70% to 89.89 and AUD/NZD advancing 0.98% to 1.0927.