The RBA is widely expected to keep rates unchanged this time around. But the focus will be on the post-rate decision remarks, as there is considerable uncertainty about when and if there will be another rate hike. There are a couple of changes that might also affect how the markets interpret the data.
This will be the first RBA rate decision meeting helmed by the new Governor, Michelle Bullock. There isn’t a lot of expectation for a major change, since she was previously the Deputy Governor. Comments she has made in Parliament suggest that she has a similar vision to the prior governor, Philip Lowe.
More changes ahead
The other change is that starting next year, the RBA will have only 8 rate decision meetings, instead of the ten up until now. This extended period between policy setting means the meetings carry more weight, and the bank will have to be more focused on predicting future moves. It implies a slower pace of action, which could make investors uneasy in a fast-paced market change.
The RBA has two more meetings after this, which gives relatively little space to hike before 2024. The consensus has shifted to expecting a final rate hike some time in the first quarter, but the new schedule implies there will be only two meetings per quarter. If rates aren’t hiked this year, then it won’t be until February when the RBA will act next – a gap of over two months.
What the expectations are
This time around, both international and Australian economists agree on the result of the upcoming meeting. 93% of Australian economists expect no change (the remaining 7% see a hike). The consensus amongst international economists is even stronger, with almost 95% of economists seeing a hold and the remainder a hike.
The focus then turns to the November decision, where forecasts start to differ. It’s only a small minority who expect there to be a rate hike in November, but the money markets see an increasing chance of a rate hike from there to the end of the year. It’s quite possible that the RBA could signal that no more action is expected for the moment, which would imply taking November off the table for tighter policy. That could be seen as pulling down market expectations and weakening the Aussie.
Beyond Australia
The Australian dollar has been rocked by the dynamic situation in the country’s largest export destination, China. Also, the Fed is seen nearing the end of its rate hiking cycle. Markets expect no more rate hikes, while the Fed implies one more hike. This is the reverse for the RBA, meaning that markets are currently pricing in the interest rate gap between the greenback and the Aussie to close by 25 bps.
If the Fed does go through with their hike and the RBA does not, the gap could expand by the end of the year. This could contribute to further weakening of the Aussie, especially if China’s economy doesn’t pick up in the meantime.
