The latest poll by Reuters shows that 20 of 36 economists are expecting the RBA to announce a 25 bps rate hike to 4.35% next week. If so, that will represent the highest cash rate in nearly 12 years. For me, that’s still quite a split decision as the other 16 economists (45%) are voting for no change to the cash rate.
Meanwhile, among Australia’s “big four” banks – whose views tend to hold more weight – there is a split in the call as well. CBA and Westpac are both still expecting a 25 bps rate hike while ANZ and NAB are anticipating a pause.
But what is more important perhaps, is what has been priced in by markets?
Despite the balance of the call above being slightly favoured to a 25 bps rate hike, the OIS market is showing odds of that being only at roughly 23%. That means that traders are pricing in a roughly 77% probability that there will be no change to the cash rate on Tuesday.
And therein lies the risks to any reaction in the Australian dollar. That being that if the RBA does deliver “as expected” with a 25 bps rate hike, there is going to be a stronger reaction higher for the currency than it would if the central bank opts for a pause instead.