THE Australian dollar edged higher on Monday as investors wagered the country’s central bank would sound more hawkish at a policy meeting this week, with even a rate hike not outside the realm of possibilities.
The Reserve Bank of Australia (RBA) concludes its two-day meeting on Tuesday and is generally expected to keep rates at 4.35 per cent having been on hold since last November.
That was the call of all but one of 25 analysts polled by Reuters, with the outlier tipping a hike to 4.6 per cent given inflation had proved surprisingly stubborn in the first quarter.
Markets are pricing in around a one-in-10 chance of a hike, which rises to 4-in-10 by September.
All the major local banks – ANZ, CBA, NAB, and Westpac – still think the next move will be a rate cut, albeit not until November at the earliest.
However, recent high readings for home-grown costs will likely force the RBA to nudge up the near-term inflation outlook and test the Board’s confidence that inflation would return to its 2-3 per cent target band by late 2025, from 3.6 per cent in the first quarter.
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“While we don’t expect the Board to explicitly discuss a rate hike, the communication on Tuesday will be more hawkish than in March,” said Adam Boyton, ANZ’s head of Australian economics.
“We’ll be looking for the Board to call out the risks around sticky services inflation, in particular.”
Analysts at NAB expect the RBA will reinstate an outright tightening bias, having turned neutral back in March, though CBA and Westpac doubt it would change course quite so quickly.
The risk of a hawkish turn kept the Aussie firm at US$0.6615, having hit a two-month top of US$0.6650 on Friday following a softer US jobs report. Major resistance lies at the March peak of US$0.6667.
The New Zealand dollar held at US$0.6003, after climbing to a three-week high of US$0.6050 on Friday.
The Reserve Bank of New Zealand (RBNZ) next meets on May 22 and is considered all but certain to keep rates at 5.50 per cent, though markets are fully priced for a cut by October following recent weak employment data. REUTERS