RBA Expectations Underpin Australian Dollar Against US Dollar – Commerzbank

Markets now assign a high probability to an RBA rate hike by year-end. Commerzbank’s Norman Liebke says stronger rate expectations have supported the Australian Dollar (AUD). The next inflation release will be crucial for AUD/USD. The bank’s economists still forecast unchanged RBA rates, but expect the policy outlook relative to the Fed to underpin the Aussie in the near term.

RBA rate expectations rise as inflation risks loom

"Yesterday, the Aussie has received further support from a significant rise in interest rate expectations, pushing AUD/USD to its highest level since late September. The trigger for the higher rate expectations was comments from RBA Deputy Governor Andrew Hauser. He described the inflation outlook as “materially worse” than the RBA had previously expected and at the same time warned of a potential de-anchoring of inflation expectations."

"Markets therefore reacted strongly to Hauser’s comments. For the upcoming meeting on 3 November, a rate hike is now priced in with a probability of around 55%, compared with just 24% the previous day. By year-end, the cumulative probability of a rate hike priced into the market stands at around 90%."

"This makes the inflation data due on 28 October all the more important. In its August forecasts, the RBA had already expected headline inflation to fall to 3.6% and trimmed-mean inflation to 3.3% by December."

"The upcoming data should at least provide indications that inflation is indeed moving in that direction. If price pressures remain similarly elevated or even intensify, however, this would validate the recent rise in rate-hike expectations and cement the risk of another rate move at the RBA’s meeting on 3 November."

"For now, we continue to expect the RBA to leave its policy rate unchanged."

"Nevertheless, we see further upside potential for the Aussie in the near term. While a reversal of the recent sharp increase in RBA rate-hike expectations could initially weigh somewhat on the AUD, this is counterbalanced by the fact that our economists also expect fewer Fed rate hikes than are currently priced in by the market. From a relative monetary policy perspective, the Aussie should therefore continue to receive support for the time being."

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