Australian Dollar: AUD may face year-end pressure from RBA pause - TD Securities

4.85% is the Reserve Bank of Australia's (RBA) highest rate since 2008. TD Securities’ Prashant Newnaha interprets the 25bp hike as signalling a conditional pause, not a fresh tightening cycle. The 6-3 vote and weaker growth outlook suggest a prolonged hold, despite upward revisions to inflation forecasts. In his view, November 2027 is the earliest date for a rate cut, although a sharp deterioration in unemployment and housing could bring easing forward. He also expects the Australian Dollar (AUD) to lag into year-end.

25bp RBA hike points to conditional pause

"The Bank raised the cash rate 25bps to 4.85%, the highest since 2008. The revised forecasts point to a more hawkish inflation outlook, but a less forceful signal on what comes next. The RBA has taken insurance against a worse inflation scenario, while the 6-3 split vote, a softer activity outlook and removal of explicit further hike-guidance suggest a conditional pause, not a committed hike cycle."

"On balance, we view the RBA Governor projecting a 'conditional pause'. Our central forecast is the RBA is done hiking and will sit it out on the sidelines for an extended period."

"If history is a guide then, the earliest the RBA cuts is Nov'27."

"Of course, if the unemployment rate increases above 5% more quickly and housing activity slows materially then there is a risk the RBA could cut earlier, but that would be late Q3 or Q4 2027."

"We expect the AUD to underperform into year-end."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)