ANZ Research previews next week's May RBA policy meeting.

"Focus next week will be on the RBA meeting, where we expect a 25bp hike, taking the cash rate to a terminal 4.35%. OIS markets have assigned around a 75% probability of a hike. Beyond the decision itself, the voting split will be closely watched, particularly if the decision is close (such as a 5:4 or 6:3 split). The post-meeting press conference will also be watched for whether it was a hawkish hike, potentially signalling more hikes ahead, or if it was a more cautious ‘wait and see’ hike. This distinction will have implications for market pricing of RBA rate hikes and thus the AUD," ANZ notes.

"With markets already pricing close to three hikes in total (including 25bp for next week with a year-end implied rate of around 4.8%), we see scope for a reduction, particularly in the event of a cautious hike. In such a scenario, we see mild downside risks in the AUD/USD, with initial support at around 0.7150. Given market pricing, we think it will be difficult for the RBA to ‘out hawk’ the market, so we see limited upside from a hawkish hike," ANZ adds.