Forex Trading Library

RBA Expected to Keep Rates Unchanged, but How Hawkish?

0 22

The AUDUSD has been on an upswing, of course aided by a weaker dollar. But the recent data out of Australia can make the case of a stronger Aussie. It’s quite possible that even if the RBA holds rates unchanged, as expected, the pair could continue to rise.

One of the more pressing matters for markets is whether the RBA will keep signaling a hiking bias, or will admit that rates might turn around. Following the release of the latest housing data, markets pushed the expectation for cuts further ahead, which also contributes to strength in the Australian currency.

Where Expectations Stand

Both Australian and international economists are strongly in agreement that tonight’s (or really early tomorrow morning, depending on where you are in the world) RBA rate decision will be another pause. There is a discrepancy in the averages, though. Just 82% of Australian economists expect a pause, while over 93% of internationals share this view.

Naturally, the market has priced in no move, as it would be a very large surprise if so many economists were wrong. Which means the focus is now on the future, and what guidance the RBA might provide. Here, too, there is a pretty strong consensus that the RBA will keep rats elevated for at least another half a year. Which means there is little expectation that the reserve bank will provide any signals of a rate cut in the monetary policy statement.

The Outlook for the Aussie

Next year, the RBA will move to its new schedule of just eight meetings instead of the current eleven. That means an extended pause until the next meeting after this one, so guidance being provided will likely have a bigger impact.

That leads to the question of just how hawkish the monetary policy statement will be. After hiking at the last meeting in a move that surprised the markets, the consensus seems to be that the RBA will want to keep the pressure on. Implied futures rates see the current interest rate policy unchanged for the first half of next year, which means the market is expecting the current stance to be maintained.

What Changes an Unchanged Stance Implies

Since the last meeting, RBA Governor Michele Bullock has been consistent in her messaging that rates could go up if inflation doesn’t behave. But the pace of price increases has been coming down, although it’s far from the bank’s target. The October reading was improved to 4.9% annual compared to 5.6% prior, but it’s a far cry from the 2-3% target range.

The impact on the housing market is seen as an important factor in the rate decision, as the RBA is seeking to both cool the housing market but not hurt it too much. Rising housing prices have been contributing substantially to the cost of living crisis in Australia, but raising rates also makes it less affordable to buy a home. What guidance the RBA provides in terms of the housing market might be pivotal for how the market reacts to the interest rate decision.

Trading the news requires access to extensive market research - and that's what we do best.

Leave A Reply

Your email address will not be published.