When is the RBA Interest Rate Decision and how could it affect AUD/USD?

After announcing seven consecutive rate increases, the Reserve Bank of Australia (RBA) is up for another hawkish monetary policy outcome, despite teasing doves of late, during the scheduled Interest Rate Decision around 03:30 AM GMT on Tuesday.

The RBA is expected to slow down on the rate hike trajectory by lifting the benchmark interest rate by 25 basis points (bps) to 3.10%, mainly to fight inflation and match the tune with other major central banks. Given the recently dovish remarks by the RBA officials, the AUD/USD traders will be more interested in hearing about the end of the rate hike trajectory.

Ahead of the event, Westpac said,

The RBA, in responding to a significant inflation challenge and the tightest labor market in 50 years, has quickly raised interest rates. Rates have lifted from a record low of 0.1% at the start of May, with moves at each monthly Board meeting, including 50bps hikes for the four meetings from July to September. The RBA slowed the pace of tightening at the October meeting, back to 25bp increments, with that policy arguably moving into the contractionary zone. Inflation is still too high and more work needs to be done in our view. Annual headline inflation is expected to hit the 8% mark in the December quarter and to still be above the 2–3 target band at the end of 2023 (at about 4%, we expect).

On the same line, FXStreet’s Dhwani Mehta said,

Markets are expecting the RBA to take note of easing inflationary pressures, with all eyes now focused on any changes to this statement - “the Board expects to increase interest rates further over the period ahead.”

How could the RBA decision affect AUD/USD?

AUD/USD picks up bids to renew intraday high around 0.6720 amid the market’s cautious optimism during early Tuesday. The quote’s recent recovery takes clues from headlines suggesting optimism surrounding China’s Covid conditions and recently easy US inflation expectations that challenge the hawkish bias over the Federal Reserve (Fed), especially after Friday’s US jobs report.

As per the latest Aussie data, inflation jumped to a multi-year high, but the economic fears also grew as markets remain divided over the central banks’ next moves. The housing market problem also challenges the RBA hawks and dims the bullish bias surrounding the AUD/USD.

It should be noted that RBA Governor Philip Lowe recently stated that the central bank’s decision to downshift reflects monetary policy lags.

That said, a 0.25% rate hike appears already priced in and may offer a knee-jerk reaction, highlighting the pace of bond purchase and the signal for the RBA’s next rate increase as the key catalysts.

Should the RBA shows readiness to pause the rate hike trajectory from the next meeting, scheduled for February, the AUD/USD may have further upside to trace. However, the need for more rate hikes could challenge the Aussie pair buyers.

Technically, a clear downside break of the five-week-old bullish channel keeps AUD/USD bears hopeful unless the quote rises back beyond 0.6760.

Key quotes

Reserve Bank of Australia Preview: Hinting toward an end to its rate hike cycle?

AUD/USD Forecast: Further declines expected on a break below 0.6685

About the RBA interest rate decision

RBA Interest Rate Decision is announced by the Reserve Bank of Australia. If the RBA is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the AUD. Likewise, if the RBA has a dovish view of the Australian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.