Here’s a forecast for a 25bp RBA rate hike next week – citing inflation not falling

July 31, 2024 at 03:52AM
ING responding to the inflation data from Australia today:

If you wanted to find a reason to leave rates unchanged at the 6 August meeting, there is some support in the core numbers published today to say, “Let’s give the economy the benefit of the doubt”.

The August decision is certainly more finely balanced today than it was yesterday.

However, for us, the evidence to suggest that inflation, even if it is trending lower (debatable) is doing so too slowly is more compelling.

Add to that, another strong retail sales figure for June (0.5% MoM after the 0.6% May figure) and you get a picture where domestic demand is holding up too well to allow for a satisfactory decline in inflation to the RBA’s target range over the medium term.

We still favour a 25bp rate hike on 6 August to take the cash rate target to 4.6%.

The initial market response to today’s data was for the AUD to weaken sharply, most likely due to the core inflation figures. Markets, which had been pricing about a 25% chance of an August hike priced it back out again. This seems like an overreaction to today’s figures, but maybe if the market is not pricing in a hike, the RBA will be less willing to surprise them…? We’ll know soon enough.

I’m going to disagree with this take. I think the inflation data today gives the RBA enough reasons to not hike next week. The Bank meet on August 5 and 6.

The data ICYMI:

Australian Q2 core inflation +0.8% q/q (expected 1.0%)

AUD/USD has dropped under 0.6500 after core inflation comes in lower than expected

AUD/USD is around 0.6495

This article was written by Eamonn Sheridan at www.forexlive.com.

Here’s a forecast for a 25bp RBA rate hike next week – citing inflation not falling