The RBA hiked by 50 bps to 1.35% as anticipated. Short-term interest rate markets saw an 80% chance of a 50bps hike, but economists were expecting a 50bps hike. So, there were no major surprises with the print. The ‘as expected’ feel really continues throughout the statement with the RBA signalling everything that you would expect.

Inflation

This was seen to be high, but not as high in Australia as in other countries. The latest print is 5.1%y/y which is pretty much in the middle of the pack. The US and the UK are closer to 10% and the Swiss and Japan still have some of the lowest inflation readings around 2-3%. The RBA projects inflation to peak this year and then fall back towards 2-3%.

Tight labour market

Unemployment is at a 50-year low at 3.9% in May and the RBA sees this tight labour market as encouraging higher prices. The RBA anticipates a lift in wages as job vacancies and job ads are both at a very high level.

Households

One interesting point was that the Board were unsure about how households would be responding from here. They had a mix of observations:

“The recent spending data have been positive, although household budgets are under pressure from higher prices and higher interest rates. Housing prices have also declined in some markets over recent months after the large increases of recent years. The household saving rate remains higher than it was before the pandemic and many households have built up large financial buffers and are benefiting from stronger income growth”.

The takeaway

The bottom line is that the RBA still expects to take ‘further steps’ in the process of normalising monetary conditions. e.g keep hiking rates. This should keep the AUDUSD supported over the medium term as long as China’s outlook remains stable.