Australian Dollar: Does a largely priced-in RBA hike leave scope for disappointment? – DBS

The tentative AUD/USD recovery faces a risk of disappointment from the RBA, according to Philip Wee at DBS Group Research, as the central bank could pause or signal that interest rates are close to their peak. Following an acceleration in CPI inflation, AUD has already largely factored in a 25-bps increase to 4.85% at the November meeting. Lower GDP growth forecasts and higher inflation projections highlight the difficult policy trade-off facing the RBA.

Can the Australian Dollar navigate the RBA’s 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."

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