The RBA with a 25bp hike Expected

The RBA is set to hold their November meeting tomorrow and whilst the consensus is for a 25bp hike, it doesn’t mean they won’t do a 50bp one instead. Economists favor a 25bp hike, although money markets estimate a 51% chance of a 50bp hike tomorrow. It may be a closer call than economists think. And we’ll keep close eye on whether the RBA retain the comment of the 25 vs 50 being finally balanced. Overnight implied volatility has spiked higher ahead of the meeting.

It is expected that the RBA will repeat a second 25bp hike tomorrow and potentially even pausing in December. On one hand, Governor Lowe has said the RBA tend to forecast their policy on inflation expectations – which remain well anchored. On the other hand, if October’s debate for 25 ot 50bp was finally balanced then it poses the question as to whether the strong inflation report tips the scale towards a 50bp hike.

Retail sales rose for an eight consecutive month in September by 0/6%. 8 of its 9 territories were also rising with shoppers mostly spending on cloths, footwear and personal accessories and cafes, restraint and takeaway services. This is hardly going to make the RBA blink, but it does show relatively strong consumer demand despite higher prices- suggesting that households are managing the higher rates.

The Aussie bounced 5.7% from October low before pullback over Thursday and Friday. It remains within a wider bullish channel which still allows for further gains, but at the same time we don’t know yet whether or not the pullback from 0.6520 is yet complete. We may be in for a quiet session and we need to see where the USD decides to go ahead of tomorrows meeting, but support around the weekly pivot and 0.6390/0.6400 support is an area of interest for traders over the near-term, as it likely temps bullish with prices above it or bears with a break beneath it.