RBA: What to watch for moves in AUD

On Tuesday at 0530 UK time the RBA will be meeting and deciding on whether to hike rates or pause on rates. At the moment the market is pretty much evenly split over what decision the RBA will make. At the end of last week short term interest rate markets saw a 37% chance that the RBA would hike by 25bps and a 63% chance that they would pause on rates. So, according to short term interest rate markets a 25 bps hike would be a surprise.

Economists favour another hike.

A recent Reuters poll see 16 out of 31 economists favouring a 25bps hike, with 15 seeing a pause ahead from the RBA. So, when you combine the survey with short term interest markets it is roughly a 50/50 split as to whether the RBA will hike or not. Remember, that the RBA delivered a hawkish surprise hike in their last rate decision.

Look to the forward guidance for the moves in the AUD

What markets will want to know is whether or not the RBA has finished hiking rates. STIR markets still see a terminal rate of 4.62% in the spring of next year.

So, the communication will be crucial for the moves in the AUD. Here is what to watch for: