FXStreet: the Reserve Bank of Australia hints at the end of its rate hike cycle?

Source: FXStreet

Author: Dhwani Mehta

Article: Original article

Publication date: Monday, December 5, 2022

The Reserve Bank of Australia (RBA) is currently preparing for another rate hike at the meeting on December 6. It will be the eighth consecutive month of hiking. The interest rate decision will be announced at 03:30 GMT. Markets expect it to be one of the last RBA rate hikes.

According to most forecasts, the RBA will raise the official cash rate by 25 bps. Thus, it will rise from 2.85% to 3.10%.

Nevertheless, according to RBAWatch, the bank won’t announce any rates changes this month with a 30% probability. Reuters poll says, median expectations of the rate equals 3.60%, although this hike is believed to be the last in the RBA’s tightening cycle.

The RBA is taking a pause for January (the bank doesn't hold any meeting during this month) until its meeting in February to assess what impact the policy tightening had.

Thus, Tuesday's policy statement will be meticulously reviewed in case there are any hints of next year rate hikes. Although the Australian Consumer Price Index (CPI) amounted to 7.3% in September, which is the highest figure since 1990, the October CPI of 6.9% could be a sign of an inflation peak. There was a statement that the board stuck to further hikes, however, markets expect the bank to take the easing inflationary pressure into account.

AUDUSD is in its best position since September. Currently, it’s around 0.68. The uptrend is stimulated by the Fed’s dovish forecast and reborn optimism about China opening.

The RBA may either surprisingly raise the rate less than by 25 bps or raise it, as expected, by 25 bps. The 25 bps hike will be a sign of the end of the tightening cycle. Moreover, it will be a dovish move, which takes the bullish AUDUSD momentum out. In case the scenario comes true, the currency pair could fall to the 0.6742 level.

In case the RBA officials give a signal of any further increases, it means that the policy becomes more hawkish and an additional stage of northward journey. Thus, bulls can push the currency pair to the 200-MA at 0.6921 on a sustained move above the 0.6900 level.  

Forecast: AUDUSD correction