Australian Dollar faces disappointment risks with RBA hike largely priced in – DBS

Following an acceleration in CPI inflation, a 25-bps RBA rate rise to 4.85% at the November meeting is largely reflected in the AUD, according to Philip Wee at DBS Group Research. A pause or a signal that rates are close to their peak could nevertheless disappoint markets, he cautions. Lower GDP growth forecasts and higher inflation projections underline the difficult policy choices facing the RBA, while the AUD/USD recovery remains tentative.

Australian Dollar confronts difficult RBA policy choices

"The AUD has largely priced in a 25-bps hike to 4.85% at the November 3 Reserve Bank of Australia meeting."

"Although the three earlier hikes appear to be cooling the labour market, weak productivity growth continues to sustain inflationary pressures despite subdued consumption growth."

"The RBA could, nevertheless, disappoint by following the Reserve Bank of New Zealand’s surprise pause or by delivering a hike while signalling that rates are nearing peak."

"The RBA’s accompanying Statement on Monetary Policy will likely show 2027 forecasts revised lower for GDP growth and higher for inflation, underscoring the RBA’s difficult policy trade-off."

"AUD/USD’s recovery from 0.6894 to 0.7032 in the second half of October remains tentative, with the USD also likely to determine if it can break last week’s peak at 0.7068."

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