Credit Agricole CIB Research discusses its expectations for tonight's RBA policy meeting.
"The RBA will raise rates a little earlier than we expected. Current PM Scott Morrison has given the RBA his consent to raise rates during the election campaign by saying the decision should be independent of politics, which makes things easier for the RBA this week. Indeed, the central bank’s key measure of underlying inflation, the trimmed mean, is running at 3.7% YoY and well above its 2-3% target range and the unemployment rate at a series low of 4%. So it is past time for the RBA to begin lifting the cash rate from its record low of 0.10%. So we now expect the RBA to raise rates by 15bp in May and another 25bp in June, after expecting the RBA to wait until June to hike rates by 40bp," CACIB notes.
"While the earlier rate hike is good news for the AUD as it lends some credibility to the market’s aggressive pricing for future rate hikes, we think the AUD will struggle to move higher against the USD. The RBA is being outgunned by the FOMC and while China is pledging support for its economy including looser fiscal policy and a big infrastructure spend up, it will take longer than usual for this to give the economy a boost while the government pursues its zero-Covid strategy and lockdowns," CACIB adds.