After announcing consecutive nine rate increases so far, the Reserve Bank of Australia (RBA) is up for another hawkish monetary policy outcome, despite teasing the policy pivot of late, during the scheduled Interest Rate Decision of around 03:30 AM GMT on Tuesday.
The RBA is expected to carry out the slow and steady interest rate hike by lifting the benchmark interest rate by 25 basis points (bps) to 3.60%, the fourth such move in a row, during Tuesday’s Interest Rate Decision.
Given the recently mixed statements in the RBA minutes and a contrasting play between inflation and wage numbers, not to forget the talks of policy pivot, the AUD/USD traders will be more interested in hearing about the end of the rate hike trajectory, making this event crucial.
Ahead of the event, Analysts at ANZ said,
A 25bp hike is an overwhelming consensus. The focus will be on any changes to last month’s statement that ‘the Board expects that further increases in interest rates will be needed over the months ahead’. We’ll also be looking for the RBA’s take on the softer Q4 wage prints and whether these alter its view on the risk of a “price-wage spiral”. But the recent run of softer data won’t be enough to dispel the RBA’s concern that inflation expectations could become entrenched.
On the same line, FXStreet’s Dhwani Mehta said,
A 50 bps rate hike is out of the books, leaving no scope for a surprise on the size of the rate increment. The central bank could, however, maintain that more rate hikes are expected if they disregard the benign wage growth amid elevated inflation levels.
How could the RBA decision affect AUD/USD?
AUD/USD picks up bids to renew intraday high around 0.6750 amid the market’s cautious optimism, as well as upbeat Aussie Export and Import numbers for January, during early Tuesday. The quote’s recent recovery also takes clues from comments from Aussie PM Anthony Albanese who said earlier in the day, “I believe Australia can avoid a recession.” The policymaker also said that the relationship with China has improved.
That said, the RBA is up for a 0.25% rate hike and is less likely to surprise the markets with a 0.50% rate lift, considering the recently softer data and a shift in the RBA talks.
Should the RBA shows readiness to pause the rate hike trajectory from the next meeting, the AUD/USD may have a further downside to trace. However, the need for more rate lift could allow the quote to extend the latest rebound.
Technically, AUD/USD remains on the bear’s radar unless crossing the 200-DMA hurdle, around 0.6790 by the press time.
Key quotes
AUD/USD grinds past 0.6700 on mixed Australia trade numbers, RBA, Fed Chair Powell eyed
Reserve Bank of Australia Preview: AUD/USD set to suffer on a dovish outlook
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.
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