The Reserve Bank of Australia (RBA) is Australia’s central bank and derives its functions and powers from the Reserve Bank Act 1959. Its duty is to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people. It does this by conducting monetary policy to meet an agreed medium-term inflation target, working to maintain a strong financial system and efficient payments system, and issuing the nation’s banknotes.
The RBA provides certain banking services as required to the Australian Government and its agencies, and to a number of overseas central banks and official institutions. Additionally, it manages Australia’s gold and foreign exchange reserves.
RBA Expected to Pause
When the Reserve Bank of Australia meets on Tuesday, interest rates are expected to remain at 4.10%, and a rate hike would be a big surprise. ASX RBA rate tracker shows 86% odds of a third pause today.
The most important factor in RBA rate policy is of course inflation. In July, CPI fell to 4.9% y/y, down from 5.4% y/y and better than the consensus of 5.2% y/y. Inflation is moving in the right direction and has dropped to its lowest level since February 2022.
RBA’s third consecutive pause will likely raise expectations that the current tightening cycle is over, but we haven’t reached that point yet. The governor will keep the door open to further rate hikes at his final meeting. Despite a rise from 157,000 to 187,000, nonfarm payrolls remained below 200,00 for a third straight month. In August, wage growth fell to 0.2%, below the consensus of 0.3%. Rates are likely to remain unchanged, barring a major surprise from the CPI report a week before the meeting.
As per our prediction Australian Doller will be neutral so that the AUDUSD pair will fall down. Looking ahead to AUD/USD traders will key in on RBA interest rate decision, which are expected to show essentially stagnant prices for consumers and an outright contraction in producer prices for the eighth consecutive month.