RBA Expected To Raise Interest Rates for the Six Time in Seven Meetings
The Reserve Bank of Australia is expected to raise its cash target rate another twenty five basis points for the six time in the past seven meetings in April, and hawkish comments subsequent to the rate decision may drive the Aussie higher as the central bank aims to further normalize policy this year. According to the Credit Suisse overnight index swaps which is a gauge of rate hike expectations, investors are pricing in a 70% chance that policy makers will increase rates tomorrow, and are also pricing in a 99 basis point rate hike for the next twelve months.
Yesterday, figures showed that the Australian TD inflation gauge rose an annualized 2.9% in April, nearing the central bank’s upper target range of 2% – 3% and adding further pressure on Governor Glen Stevens to extend raising the economies key overnight lending rate. Meanwhile, Stevens expressed concerns that house prices are “getting to high” as prices rose the most since at least 2003 during the three months through March, and the Governor also noted that “interest rates to most borrowers have been somewhat lower than average,” a signal that the central bank may indeed increase rates tomorrow.
However, it is noteworthy that Mr. Stevens recently stated that the current level of rates is “pretty close” to the normal that the group was targeting. While RBA’s rate decision highlights this week’s main event theme, the rest of the calendar should not be overlooked as U.K. nationwide consumer confidence, European Central bank interest rate decision, and non-farm payrolls are all on tap.
Written by Michael Wright, Currency Analyst
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