RBA Hike May Support AUD Short-Term, But Medium-Term Risk Looms

The Reserve Bank of Australia (RBA) is set to raise its cash rate by 25 basis points to 4.60%, and National Australia Bank (NAB) sees this move supporting the Australian dollar in the near term.

However, NAB argues that this tightening cycle may ultimately lead to a medium-term risk for the AUD, as it becomes one of the first G10 economies forced to reverse course.

The bank notes that Australia's interest rates have moved from near the bottom of the G10 range to near the top and sees a meaningful risk of another increase in November.

NAB points out that Australia differs significantly from the US, citing rising unemployment, deteriorating business margins, falling house prices, and less convincing growth signals.