RBA December decision preview: Three things to watch

• The RBA is expected to leave its interest rate unchanged in its last decision for 2018.
• Several factors make the decision a significant one.

The Reserve Bank of Australia announces its rate decision on Tuesday, December 4th, at 3:30 GMT. The RBA is broadly expected to leave the Cash Rate unchanged at 1.75%, the rate set over two years ago. The Canberra-based institution is also on course to maintain its neutral bias once again. 

Recent rate decisions failed to move the Australian Dollar, and many have written off the monthly announcement as a "non-event." Nevertheless, this rate decision could be different.

Governor Phillip Lowe and his colleagues convene 11 times a year on a monthly basis, except January, summertime in the land down under. Therefore, this is the last decision until early February, making it slightly more special. 

However, recent trends around the economy have not changed that much: employment and trade remain satisfactory, while housing and investment are slowing down. Trade relations between Australia's No. 1 trading partner, China, and the world's No. 1 economy, the US, have been deteriorating in a slow process that has seen ups and downs. The recent news has been favorable to Australia: Presidents Xi and Trump reached an agreement for a 90-day truce. 

All in all, nothing dramatic has happened since early November to suggest a change in the interest rate or a hint of one coming imminently. Nevertheless, there are three things to watch.

1) Next move higher?

The recent meeting minutes from the RBA´s rate decision say that the next move is more likely to be up rather than down. The text appeared only in the meeting minutes rather than in the statement. 

Are Lowe and his colleagues happy with the recent jobs report? Or are they worried about the global slowdown? Any change in the wording about rates could make a difference, especially as this is the last rate statement until February. 

2) AUD/USD is rising, will A$ react? 

The successful summit between Trump and Xi had been preceded by a speech that was perceived as dovish by Fed Chair Jerome Powell. All in all, the US Dollar was on the back foot, and the Aussie was one of the beneficiaries. 

As a trading nation, Australia is sensitive to changes in its exchange rate, and the RBA states that a stronger A$ weighs on the economy.

Will the recent increase trigger stronger wording from the central bank? A change in the wording would show that Lowe and co. want a lower exchange rate, and it the Aussie could react.

3) GDP hint?

The decision is released precisely 21 hours before the publication of the all-important Gross Domestic Product report for Q3. Contrary to the US, Australia publishes its GDP report only once per quarter and makes revisions just in the following one.

The Governor and his colleagues will surely have the data before them. Any comment on growth could serve as a hint towards the next big event. If they express concern about a slowdown, perhaps the figure is lower than 0.6% QoQ currently expected. If they sound sanguine, perhaps markets will raise their projections.

Conclusion

The RBA is set to leave its interest rates unchanged at this decision. However, a hint about the next move in interest rates, comments on the exchange rate after the recent rise, and a sign towards the all-important GDP figure are all set to rock the Australian Dollar.