RBA Preview: Three scenarios and their implications for AUD/USD – TDS

The Bank may decide to hold off from hiking for two main reasons: 1) 30% of households were deemed to be 'at risk' of mortgage stress (Roy Morgan Survey) and 2) the impact of prior rate hikes has yet to filter through. Less important but possibly relevant is Gov. Bullock operating without a full bench, with no Deputy Governor and Chief Economist to provide alternatives on monetary policy. AUD/USD -0.50%.

The case to hike appears to be rather clear, but we question whether the Bank will send a strong message to deliver a follow-up hike as early as Dec/Feb. If the Bank states 1) ‘The central forecast is for CPI inflation to continue to decline and to be back within the 2-3 percent target range in late 2025’ then this should make a Dec hike less likely and/or 2) ‘To date, medium-term inflation expectations have been consistent with the inflation target and it is important that this remains the case.’ Repeating ‘Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe’ would suggest the Bank is in no rush to deliver a follow-up hike in Dec. AUD/USD -0.20%.

Historically when the RBA has resumed hiking or cutting after keeping the cash rate on hold for a period of time, the RBA's return has rarely been a one-and-done. A hawkish Statement would therefore be consistent with the Bank signalling a strong intention to deliver a follow-up hike in Dec or Feb. The Bank's language has repeated ‘some further tightening of monetary policy may be required....’ but if this is replaced with ‘The Board will not hesitate to raise the cash rate further....’, this adds emphasis on front-loading rate hikes. AUD/USD +1.00%.