|

RBA: Will it or won't it? – Commerzbank

Tomorrow morning, the Reserve Bank of Australia (RBA) will decide on its key interest rate. The market is pricing in a rate cut of 25 basis points to 3.85%. Hard to be sure whether this step will actually come, as some developments are likely to cause the RBA headaches, Commerzbank's FX analyst Antje Praefcke notes.

RBA can leave its key rate unchanged at 4.10%

"The labor market is proving stronger than the RBA would like. Job creation is above the long-term average and, despite the interest rate hikes following the inflation shock, the unemployment rate remains rather low at 4.1%, with the employment rate rising at the same time. Wage pressure is showing correspondingly few signs of weakness. In general, inflation showed no further signs of falling in the first quarter. Similar to other countries, prices for services continue to rise."

"The continued robust labor market and slightly higher-than-expected inflation actually argue in favor of a pause and against an interest rate cut. At the same time, the tariff dispute between the US and China has eased somewhat, so that the argument for a preventive interest rate cut out of concern about economic weakness in Australia, as China's important trading partner, has now lost momentum."

"In this respect, we would not be surprised if the RBA leaves its key rate unchanged at 4.10% tomorrow. If the RBA decides for a pause, the AUD could gain ground again in the short term. However, we remain skeptical about the AUD in the medium term, as it is likely to suffer from the economic weakness of its important trading partner China and low growth potential."

Author

FXStreet Insights Team

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

More from FXStreet Insights Team
Share:

Editor's Picks

AUD/USD consolidates above 0.7000; remains close to monthly top

AUD/USD holds steady above 0.7000 during the Asian session on Friday, trading just below the previous day's monthly low amid diverging forces. A hawkish RBA continues to support the Aussie, while the recent decline in US bond yields keeps the US Dollar depressed near a three-week low. However, oil-driven inflation fears reinforce Fed hike bets, which, along with geopolitical risks, could benefit the safe-haven buck and cap the currency pair.

USD/JPY bounces off one-month low; climbs to 157.00 amid reviving USD demand

USD/JPY rebounds from the 156.00 neighborhood, or a one-month low touched during Friday’s Asian session, with bulls looking to extend momentum beyond 157.00 amid the emergence of some US Dollar buying. Meanwhile, Japan's National CPI rose to a nine-month peak and reaffirmed BoJ rate-hike bets, which could support the Japanese Yen and cap gains for the currency pair.

Gold stalls recovery from three-month low as Fed hike bets and USD uptick cap gains

Gold struggles to capitalize on a modest intraday bounce from levels below the $4,000 psychological mark, or a three-month low set during the Asian session, and sticks to a negative tone for the second straight day. The Federal Reserve recently signaled that there is no urgency to raise interest rates. Traders, however, are still pricing in around an 80% chance that the US central bank will raise borrowing costs again at its December policy meeting.

Bitcoin, Ethereum, and Ripple rebound as major support levels cap recent sell-off

Bitcoin, Ethereum and Ripple rebound modestly on Friday after correcting and testing their key support zone the previous day. BTC holds the 50-day EMA, ETH finds support around the 100-day EMA, while XRP holds the horizontal floor near $1.300. The price action of these top three cryptocurrencies suggests a recovery if this critical support zone holds; a decisive close below these levels suggests a deeper correction.

The week ahead – UK budget, Shell, BP and HSBC and NatWest results
Financial markets have undergone another turbulent week with concerns about public sector debt levels, the impact of energy policy and higher oil and gas prices, and what events in France might mean for the UK economy going forward.
What November 3 means for the Fed's rate path and the US Dollar

The USD faces a decisive period ahead of the November 3 midterm elections. While markets anticipate another interest rate increase from the Fed in December, the battle for control of Congress could reshape fiscal policy expectations and, indirectly, the path of US monetary policy in 2027.