In terms of market prices, we do not see strong conviction that the RBA will raise the cash rate next week. Based on cash rate futures, there is roughly a 63% chance of no change, with the remaining 37% expecting a 25 basis point rate hike. If you want to get an idea of what economists expect, it’s almost a dead call.
If you look at the cash rate futures price curve, you can see a hawkish trend over the past four weeks. The red line represents the curve just after the RBA’s last decision on June 2 and the green line represents the curve today.
So, while markets aren’t really pricing in a move to July, they are definitely expecting a move to August with 24.5 bps already at this stage.
This will certainly keep things quite interesting for Aussies next week as the RBA must not only balance their rate decision but also plan how they will communicate their next steps. In my opinion, the latter will be key in how the markets react down the line.
If they maintain similar language to May and June, it should be encouraging for Australia as markets will take it as a sign that they are not letting up until inflation falls more significantly.
However, if they “skip”/”pause” and translate it into language as well, we could see the hawkish bets recede in recent weeks. This in turn should weigh on the currency.