Australian Dollar: Hawkish RBA hold supports carry – BBH

Brown Brothers Harriman’s Elias Haddad notes that the Australian Dollar (AUD) remains one of the most attractive G10 currencies thanks to favorable carry and a hawkish Reserve Bank of Australia (RBA). The RBA is expected to keep rates at 4.35% while reiterating its readiness to hike if needed, with futures pricing about a 50% chance of one more 25 bps increase by year-end.

RBA stance underpins Australian Dollar carry

"Favorable interest rate carry in Australia and Norway continue to make AUD and NOK two of the most attractive currencies across the majors. NOK and AUD rank first and second, respectively, on the G10 FX leaderboard year-to-date."

"The RBA is widely expected to keep the policy rate at 4.35% for a second straight meeting (Tuesday). The RBA is also poised to reiterate that it’s prepared to “increasing the cash rate further if needed” because inflation continues to exceed 3.0%."

"The RBA’s August Statement on Monetary Policy will shed light on the bank’s inflation and growth outlook."

"RBA cash rate futures imply about 50% odds of one final 25bps hike by year-end. The RBA has room to pause its tightening cycle."

"First, the RBA projects real GDP growth to be below potential over the next two years. Second, RBA cash rate at 4.35% currently sits near the top of the range of model-based estimates of the nominal neutral rate."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)