RBA Tipped to Follow Hawkish Market Pricing Amid Rising Inflation

Commerzbank's Volkmar Baur now expects the Reserve Bank of Australia (RBA) to follow market pricing and deliver a rate hike next week, despite earlier assumptions of no further tightening.

Inflation in Australia has risen above target at 3.5% year-over-year, but fuel costs are likely to have pushed this figure even higher in August.

Domestic indicators, such as the Purchasing Managers' Index and unemployment rate, point to an economic slowdown, while housing is softening with falling prices in major markets like Sydney and Melbourne.

Baur doubts the fundamental case for tightening but sees the RBA aligning with market expectations, which currently price a 90% probability of a rate hike.