At the last Reserve Bank of Australia interest rate meeting, the board decided to take a pause on hiking interest rates as it considered the inflationary peak had passed. However, it also thought that the risks of inflation have shifted to the upside compared to the previous month. It signaled more interest rate hikes to come.

Since that meeting, inflation has continued to fall lower and short-term interest rate markets have changed their projections, giving the Reserve Bank of Australia a peak interest rate of just over 4.10%.

Short-term interest rate markets see a 100% chance of the Reserve Bank of Australia keeping rates unchanged at the 5th of September’s meeting.


Moderating inflation, slowing global growth, stress from China and weak PMI prints from both the US and Europe should all further temper expectations for further RBA rate hikes.

What to look for from the meeting?

With interest rate markets positioning so certainly about the outcome of the RBA decision, any indication from the RBA that it needs to hike interest rates more this year should support the Australian dollar against the New Zealand dollar. A surprise interest rate hike from the RBA would at least initially lift the Australian dollar to gain sharply against the New Zealand dollar, and the extent of the gains would depend on the extent of the forward guidance in relation to how high the RBA sees interest rates going. On the other hand, if the RBA gives any hints of coming rate cuts, then watch for Australian dollar weakness out of the meeting.

However, the expected outcome is that the RBA maintains the current stance of cautious optimism that the battle against inflation is being won. If it keeps the status quo and remains on hold, then there is no obvious expectation for moves in the Australian dollar. The decision will be out early European time on September 5.

Major trade risk: The major risk here is if the Australian dollar behaves in an unexpected way, contrary to the monetary policy announcement.