Goldman Sachs on RBA Rate
BOTTOM LINE: The RBA raised the cash rate 25bp to 4.60% at today's meeting, in line with our and consensus expectations (GSe 4.60%). The Monetary Policy Board’s (MPB) decision was unanimous, with financial markets priced for 24.2bp of tightening prior to the meeting. The brief statement attending the decision retained a tightening bias and was in line with our expectations. The MPB framed the rate hike by noting that “some of the upside risks to inflation are materializing” and “recent data suggest growth and inflation in Australia have been higher than expected”. In response, the MPB determined that a “further tightening in financial conditions is warranted” and - looking ahead - that it would “increase the cash rate further if needed”. FX STRATEGY (ALVES): They hiked and maintained the tightening bias in the statement, saying they would increase the cash rate further if needed, but the press conference comments seemed less hawkish: the board saying they did consider a pause, and also refusing to give forward guidance.... I think that helps explain some of the AUD underperformance this morning but it likely also reflects the broader risk backdrop remaining challenging over the las
60%). 2bp of tightening prior to the meeting. The brief statement attending the decision retained a tightening bias and was in line with our expectations. The MPB framed the rate hike by noting that “some of the upside risks to inflation are materializing” and “recent data suggest growth and inflation in Australia have been higher than expected”.
In response, the MPB determined that a “further tightening in financial conditions is warranted” and - looking ahead - that it would “increase the cash rate further if needed”. FX STRATEGY (ALVES): They hiked and maintained the tightening bias in the statement, saying they would increase the cash rate further if needed, but the press conference comments seemed less hawkish: the board saying they did consider a pause, and also refusing to give forward guidance.... I think that helps explain some of the AUD underperformance this morning but it likely also reflects the broader risk backdrop remaining challenging over the last couple of days...
That's consistent with our AUD view that ultimately, while the RBA hiking and being hawkish helps, it really is also a call on the broader risk backdrop, and China-specific risk in particular. That's one reason we've liked EUR/AUD downside from these levels.