RBA Expected to Hold, But Easing Still On the Horizon

The RBA is widely expected to keep rates unchanged at the end of its meeting on Tuesday. So the focus turns to what Governor Michelle Bullock will say afterwards. That’s because there is considerable uncertainty about what will happen at the next meeting. The rate decision statement and particularly what aspects Bullock emphasizes could leave the market more or less expectant for a rate cut, and that could have a significant impact on the Aussie.

The thing is, the RBA is set to meet after Prime Minister Anthony Albanese called the scheduled general election for May 5th. Typically, central banks like to avoid policy changes during election period, unless there is a matter of pressing urgency. Since the next RBA meeting after Tuesday will be after the election, the consensus is that any changes in rates will be pushed off until then.

Tracing the Odds

Since the last meeting, none of the RBA’s policy making members have said anything to imply that it was time to adjust rates. Given the relatively steady trajectory of monetary policy over the last year or so, it’s understood that the central bank will want to provide some advance warning to the markets before acting. So, the quiet from RBA leadership is seen as confirmation of no rate change coming up. But it also means that Bullock would likely provide some clear hints in her post rate decision press conference about a rate cut if it were to happen at the May meeting.

The market is pricing in a 71% chance of a rate cut at the May meeting. Which means that if Bullock doesn’t deliver on those expectations, it could shake up the market. On the other hand, it’s unlikely that she would outright “confirm” a rate cut at the next meeting, meaning that a surprise in that direction is less likely. In other words, there is more room for a surprise to the upside than to the downside.

But the Currency Moves

The thing is, Australia still maintains a relatively high inflation rate, and the economy is particularly reliant on exports to China. This means that the usual interest rate differentials that drive many currency pairs might not be as clear in the Aussie’s case.

The RBA’s rate decision will be on the same day that the White House announces its largest round of tariffs yet. Depending on how much is tariffed and how, that could have a bigger impact on commodity currencies such as the Aussie. A strong retracement or relief rally could affect US yields and push the AUDUSD quite strongly.

Looking to the Next Market Mover

The market’s pricing in of a rate cut at the May meeting for the RBA is based on expectations that the Australian economy will generally remain cool, contributing to lower inflation. Quarterly inflation data is expected at the end of April, and many analysts believe it will come in below the RBA’s expectations. That would put pressure on the RBA to ease sooner than it had initially anticipated.

Which means indications that inflation will stay high in Australia could change the market’s outlook. Since that means further delay in easing (the market isn’t fully pricing in a rate cut until July), then the Aussie could get some strength.

Trading the forex market requires extensive research – and that’s what we do best.

OPEN LIVE ACCOUNT