Australian Dollar: RBA hike mostly priced, risks of disappointment – DBS

Philip Wee at DBS Group Research notes that AUD has largely priced in a 25-bps RBA hike to 4.85% at the November meeting, following an acceleration in CPI inflation. He warns that the RBA could still disappoint by pausing or signalling a near-peak in rates, with downgraded GDP and higher inflation forecasts highlighting a difficult policy trade-off and a tentative AUD/USD recovery.

Australian Dollar faces RBA 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.)