Australian Dollar: RBA hike largely priced in, leaving scope for disappointment – DBS

A 25-bps RBA hike to 4.85% is largely priced into AUD, according to Philip Wee at DBS Group Research. Expectations for the November meeting follow an acceleration in CPI inflation. Wee cautions that a pause or a signal that rates are close to their peak could still disappoint markets. Lower GDP growth forecasts and higher inflation projections underline the difficult policy trade-off, while the AUD/USD recovery remains tentative.

4.85%: Australian Dollar faces RBA policy trade-offs

"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."

(An editor reviewed this article, which was produced with assistance from an Artificial Intelligence tool. Learn more.)