RBA monetary policy decision – Overview

The Reserve Bank of Australia (RBA) is scheduled to announce its monetary policy decision this Tuesday, July 4, at 04:30 GMT and is expected to raise the cash rate by 25 bps to 4.35%. The markets, however, remain divided over the possibility that the central bank might keep its monetary policy unchanged. As Matías Salord, News Reporter at FXStreet explains:” The economic data still allows the RBA to raise rates further, and that is the main argument for a hike. At the same time, the central bank could pause at this meeting and resume the hike cycle later, which is what the interest rate market is indicating.” Hence, the focus will also be on the accompanying monetary policy statement, which will be closely scrutinized for fresh cues about the future rate-hike path.

Analysts at TD Securities offer a brief preview of the event and write: “Another line-ball call with cons. expecting no hike and OIS market pricing in ~50% prob of a 25 bps hike. Contrary to cons., we expect the RBA to hike. The labour market is too tight, upside retail sales beat for May, rebound in domestic housing prices in June and elevated household savings provides room for the RBA to continue its hike to return inflation back to target.”

How could the RBA decision affect AUD/USD?

Heading into the key central bank event risk, the AUD/USD pair is seen trading just below the one-week high touched on Monday and draws support from subdued US Dollar (USD) price action. Theoretically, a hawkish 25 bps RBA rate hike should provide a fresh boost to the Australian Dollar (AUD), though worries about economic headwinds stemming from rapidly rising borrowing costs should cap any meaningful upside.

In contrast, a dovish tilt will be enough to prompt aggressive selling around the growth-sensitive Aussie against the backdrop of worries about a global economic downturn. This, in turn, suggests that the path of least resistance for the AUD/USD pair is to the downside. Hence, any intraday positive move might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

Key quotes

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   •  RBA Preview: Banks split between a pause and 25 bps hike after softer inflation

   •  AUD/USD Price Analysis: Further recovery hinges of 0.6700 breakout and RBA Interest Rate Decision

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.