RBA Hawkishness: Is the 4.10% Cash Rate a Done Deal?
The Reserve Bank of Australia has emerged as one of the most hawkish central banks in the G10 space with Governor Michele Bullock recently describing the March meeting as “live” for a rate hike.
Australia’s headline inflation is currently hovering near 3.8% and experts warn it could surpass 4.2% by mid-year as surging oil prices and domestic cost-of-living pressures intensify. As of March 16 the ASX 30-day Interbank Cash Rate Futures reflect a 66% expectation of a 25bps increase to 4.10% which is a massive shift from just weeks ago when the odds were significantly lower.
The local labor market remains exceptionally tight with the unemployment rate holding steady at a seven-month low of 4.1% providing the RBA with the necessary confidence to tighten further.
Geopolitical Friction and the “Hormuz Risk Premium”
The Australian Dollar is currently benefiting from its unique status as a net energy exporter which has partially decoupled it from typical risk-off correlations during the Middle East conflict. With Brent and WTI crude oil prices fluctuating near $100 per barrel due to ongoing Strait of Hormuz disruptions Australia’s LNG and coal export revenues are surging and acting as a fundamental “haven” for the currency.
Additionally stronger-than-expected Chinese economic data and an improving trade surplus have provided a “China proxy” boost to the AUD as demand for Australian iron ore remains stable. However the US Dollar Index (DXY) remains firm near the 99.38 level supported by its role as the world’s preferred wartime safe-haven which continues to cap the Aussie’s upside potential.
RBA Hawkishness: Is That 4.10% Cash Rate a Done Deal?
The RBA has been one of the most hawkish central banks in the G10, with Governor Michele Bullock saying recently that the March meeting is “live” for a rate hike – in other words it’s not a done deal, but it’s definitely on the table.
