Commerzbank Sees Hawkish Risk Ahead of RBA Meeting
Volkmar Baur at Commerzbank expects the Reserve Bank of Australia (RBA) to keep interest rates unchanged, as market pricing suggests. However, he sees scope for a slightly hawkish tone due to high petroleum prices and already reduced hike expectations.
Baur notes that no analyst surveyed by Bloomberg expects a rate change at tomorrow's RBA meeting, and the market has priced in a 99% probability of keeping rates unchanged. Despite this, Baur believes it will be interesting to see how central bankers interpret diverging trends in labor markets and inflation.
The labor market has proven robust once again, while inflation has surprised on the downside twice since the last meeting. Additionally, high petroleum prices may limit the RBA's ability to sound dovish.
Baur also points out that the market has already priced out a lot of hawkishness regarding the RBA in recent weeks, with only a 60% chance of another rate hike by year-end. This means that the probability of a slightly hawkish surprise tomorrow is higher, but Baur still expects the RBA's next move to be a rate cut in the medium term.